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4 M a r ke t i n g

4.1 The role of marketing


By the end o this chapter, you should be able to:
 dene marketing and understand its relationship with other business
unctions
 explain the dierence between the marketing o goods and the
marketing o services
 distinguish between market orientation and product orientation
 explain the dierence between commercial marketing, social
marketing and social media marketing
 describe the elements that characterize the market in which an
organization operates
 calculate market share
 discuss the importance o market share and market leadership

4 Marketing
 compare and contrast the marketing objectives o or-prot
organizations and non-prot organizations
 evaluate how marketing strategies evolve as a response to changes
in customer preerences
 examine how the concepts o innovation, ethics and culture
infuence marketing practices and strategies.

Marketing is essential to the success o any business. However, marketing


is not just about selling or advertising, as many people think. It is much
more than that: it is more o a business philosophy o how best to think
about satisying consumer needs or demands. There are many globally
acceptable defnitions o marketing. Some common ones include the
ollowing.

Marketing is the management process involved in identiying,


anticipating and satisying consumer needs protably.
The Chartered Institute of Marketing

Marketing is the activity, set o institutions, and processes or


creating, communicating, delivering, and exchanging oerings that
have value or customers, clients, partners, and society at large.
American Marketing Association

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Kotler ( 1 994) summarized it well when he said Marketing is meeting


the needs o your customer at a prot. 1 Ultimately, marketing is about
getting the right product to the right customers at the right price at the
right time. This means that marketing involves a number o activities
that every marketing department should aim to satisy, all centred
on the consumer. However, all marketing decisions, whether related
to products, pricing, distribution, or promotion, are aected by other
business unctions.

Finance and makeing


S ince marketing costs money, the marketing and nance department
have to work together in setting the appropriate budgets. The marketing
department may want to spend more than is in its budget to meet
the requirements o a demanding marketing plan, but the nance
department may advise that it sticks to its given budgetary allocations.
This will cause a departmental confict.

Human esouce managemen (HrM)


and makeing
Marketing inormation can enable more eective workorce planning
in the HRM department. This can infuence the demand and supply o
labour in an organization. For example, an increase in the demand or a
4 Marketing

product as a result o improved marketing may require the recruitment


o extra sta rom the sales and production departments in order to meet
this demand. Ensuring that the right quality o salespeople are hired 
those with innovative minds and a competitive spirit  will also aid in
meeting the marketing departments obj ectives. Key terms
Marketing
Opeaions managemen and makeing the management process o
The production and marketing departments will need to work together getting the right product to the
to ensure that the products developed meet the specications o the right customer at the right price
customers. Market research will help the marketers in determining to the right place and time
the needs and wants o the consumers. However, both departments Marketing of goods
need to balance the time needed to test, develop, and launch products,
to avoid any loss in sales or reputation and any arousal o potential the use o the 4 Ps o product,
stakeholder confict. price, place, and promotion in
the marketing mix
Marketing of services
the makeing of goods and sevices
the use o the 7Ps o product,
In deciding how to market their products, businesses rst need
price, place, promotion,
to distinguish between goods, such as cars, and services, such as
process, people, and physical
insurance. This is because goods and services dier in a number
evidence in the marketing mix
o ways.

1
Kotler, P. 1994. Marketing Management: Analysis, planning, implementation and control. Englewood
Clifs, NJ, Prentice Hall.

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Table 4.1.1. Dierences between goods and services


Goods Services
are tangible, i.e. can be touched are intangible, i.e. cannot be touched
can be returned i you did not like what you bought cannot be taken back, e.g. a bad haircut
can be stored and consumed later, e.g. yoghurt. cannot be stored and will need to be consumed immediately,
e.g. your consultants time.
There is ownership o the product. There is no ownership o the product.
Goods are easier to compare because o the similar Services are more difcult to compare because o dierent
nature o some products, e.g. one TV can easily be experiences a customer may get rom a given service, e.g. a
compared to another. hotel may treat a customer dierently each time he or she visits.

In selling goods, businesses can ocus on specifc characteristics that


appeal to the consumer. In buying a new cellphone, customers can
choose one over another based on the elaborate eatures one may
have over the other, such as the number o applications. Managers
in a service- providing company such as a hotel may talk about the
number and type o rooms it has, but their marketing angle is
mostly about oering good customer service to ensure that the
customer returns.
To remain globally competitive, multinational companies today are
outsourcing their goods to countries producing at lower costs. For

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example, a clothing company based in the USA can manuacture a specifc
clothing line in Asia and ship it to customers living in Europe. However,
service businesses need to be closer to their customers; or example, it
may be very difcult or many people to travel rom country to country
on a day-to-day basis sampling varied country cuisines, rom the popular
Indian curry to the sumptuous Kenyan nyama choma (roast meat) .
Thereore dierent cas or restaurants (mostly ranchises) are increasingly
drawing closer to customers in their localities to sell their cultural oods.
In addition, organizations oering services must always guard their
reputation by having well-trained and approachable employees who
will help in enhancing their product quality and image. For example, an
airline industry with well-groomed and smiling sta greeting passengers at
the entrance o the plane can help in urther marketing the airline.
E ssentially, the marketing o goods is based on the our  Ps o
the m arketing m ix  namely price, product, promotion, and place.
The marketing o services includes the three additional aspects o
people, processes, and physical evidence. These aspects will be explored
later in this unit. It is important to note that many products now have
both goods and service elements to them. For example, a customer
may buy an iPad as a physical product but may receive ater- sales
service in the orm o a warranty or ree maintenance or a year.

Market orientation verses product orientation


There are two distinct approaches that businesses can use to market their
products. They can either use a p roduct-orientated ap p roach or a
market-orientated ap p roach. These two approaches are shown in the
table below.

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Table 4.1.2. Diferences between a product-orientated approach and a


market-orientated approach
Product-orientated approach Market-orientated approach
inward looking and ocused on making the product rst outward looking and ocused on carrying out market
and then trying to sell it research rst and then making products that can sell
product-led and assuming that supply creates its own market-led and ocused on establishing consumer
demand (Says law) . Here businesses produce innovative demand so as to supply products that meet consumers
products and tempt the customers to buy them needs and wants

O rganizations that have adopted a product- orientated approach to


their products include Microsot, Ferrari, D yson, and Apple. Many
organizations are now market-orientated businesses, including Ford,
S ony, S amsung, and Nokia.
These are the benets to a business o being market- orientated:
 As a result o market research, rms have increased condence that
their products will sell, thereore reducing the risk o ailure.
 Access to market inormation means that rms can respond more
quickly to changes in the market and are also able to anticipate
market changes.
 Firms will be in a strong position to meet the challenge o new
competitors entering the market as a result o regular eedback rom
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consumers brought about by market research.


However, market orientation does have some limitations:
 C onducting market research can be costly and thereore weigh
heavily on a rms budget.
 D ue to requently changing consumer tastes, rms may nd it
dicult to meet every consumers needs with its available resources.
 Uncertainty about the uture could also have a negative infuence on Dyson takes a product-orientated
market- planning strategy. approach to marketing
Product-orientated businesses put a lot o emphasis on the production
process rather than on their potential customers. A product- orientated
business will have these advantages: Key terms
 It is associated with the production o high- quality products such as Product orientation
luxury sports cars and saety products such as crash helmets.
a business approach that
 It can succeed in industries where the speed o change is slow and ocuses on making the
the rm has already built a good reputation. product rst beore attempting
 It has control over its activities, with a strong belie that consumers to sell it
will purchase its products. Market orientation
However, the maj or limitations such a rm aces include the ollowing: a business approach o
 S ince the rm ignores the needs o the market, it takes risks that may rst establishing consumer
lead to eventual business ailure or closure. demand through market
research beore producing
 S pending money on research and development without considering and selling a product
consumer needs could be costly and not yield any promising results.

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4 .1 TH E R O LE O F M AR KE TI N G

Commercial marketing
This involves creating, developing, and exchanging goods or services
that customers need and want. In this case, market research is carried
out to establish consumer demand and businesses will supply what is
demanded. C ommercial marketing is value- ree and does not involve
making moral j udgments on the buying habits o customers. O nce
the specifc product is identifed, appropriate strategies need to be
put in place to market the product. The strategies used in commercial
marketing need to be tailored specifcally to the type o product
the commercial is selling. These strategies may include a traditional
ocus ( using billboards, television advertisements, or local print
media) or an online marketing campaign ( using Google Ad S ense or
emails) . There is also the option o either adopting a mass- marketing
campaign, to get the product into the minds o as many consumers
as possible, or to use targeted advertisements aimed at specifc
demographics.

Social marketing
This involves the use o marketing approaches that help bring about
changes in behaviour that ultimately beneft society. The S ocial
Marketing Institute ( S MI) defnes it as:

the use o commercial marketing concepts and tools in


programmes designed to infuence individuals behaviour to

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improve their well-being and that o society.
Social marketing is a wide concept involving other stakeholders. It
ensures that businesses make good marketing decisions based not only on
consumers wants and the frms requirements but also on consumers and
societys long-term interests and welare. Examples o social marketing
include public health campaigns, or example anti-smoking campaigns
centred on reducing smoking, providing inormation on the dangers o
drink-driving, and educating the public on the benefts o eating healthy
ood to discourage overeating or poor dietary habits. Social marketing
programmes also include environmental campaigns to promote recycling,
Key terms
clean air, and water as well as other measures o conservation. Today social
marketing also looks into areas such as human rights and amily planning. Commercial marketing
S ome advantages o social marketing include the ollowing: marketing activities that
 It gives frms a competitive advantage as consumers may perceive such determine consumer needs
frms to be socially responsible and thereore buy products rom them. and wants beore using
appropriate strategies to
 Firms can charge premium prices or providing goods that society is market the product
deriving benefts rom.
Social marketing
However, getting people to change their habitual behaviour poses a
major challenge to social marketers. As a result, a number o non-proft a marketing approach aimed
organizations ( NPO s) have set up in an eort to help people change their at infuencing a positive
behaviour, or example Alcoholic Anonymous ( AA) . change in individual behaviour
and improvements in societal
The S ocial Marketing Institute encourages the use o a wide range o well-being
marketing tools by going beyond j ust Promotion in the marketing

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mix and ully incorporating the other elements o the marketing mix as
well in the eort to bring social change. ( S ee more on promotion in the
marketing mix in sections 4. 2 and 4.5 )

Social media marketing (SMM)


S MM is a marketing approach adopted by businesse s that use s social
networking websites rom the Internet to marke t its products. S MM
is a marketing tool that incorporates the use o technological
concepts and te chnique s with the aim o growing a b usiness through
dierent media.
S MM has increased in popularity with the development o websites such Social media can be a powerul
as Facebook, Twitter, LinkedIn, and YouTube. way to reach lots o customers
very quickly
These are the benefts o SMM:
 It enables a frm to get direct eedback rom its customers while
still appealing to them personally, through its interactive sections
TOK discussion
that provide customers with the opportunity to ask questions In marketing, what role does
and voice their complaints. This is known as social customer language play in the diferent
relationship management. areas o knowledge?
 It provides a low- cost way or frms to reach a large target audience.
For example, the number o users o Facebook stood at 1 .1 1 billion
in April 2 01 3 .
 It can enhance a frms brand. S ince many social networking websites
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already have large established online communities, frms can gain


exposure by simply j oining these websites.
However, while S MM is a very useul marketing tool, most
businesses will use it as a supplement to other marketing methods
and not as a replacement or them. S ince it is easy or any business
to j oin a social networking website, it can be difcult or a business
to stand out rom the crowd, hence the need also to rely on other
marketing techniques.

Student workpoint 4.1


Be a thinker Key terms
1 . D istinguish between marketing a good and marketing a service.
Social media marketing
2 . Using specifc organizational examples, comment on the benefts
the use o the Internet through
o market orientation.
social networking websites
3 . E xplain how social marketing diers rom S MM. to market a rms product or
service

Characteristics o the market in which an


organization operates
A market is an arrangement where buyers and sellers exchange goods
and services. It includes actual as well as potential buyers or customers
o a product whose needs or wants are satisfed by sellers or suppliers in
the exchange process.

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4 .1 TH E R O LE O F M AR KE TI N G

The elements that characterize the market in which an organization


operates are as ollows:
 Market size  this represents the total sales o all businesses in a
given market. It is measured in two ways:
 B y volume  this measures the number o goods bought by
customers. It is a quantitative measure o the units sold by
businesses, or example bags o maize.
 B y value  this measures the amount spent by customers on the
total number o goods sold by businesses. It is the total revenue
expressed in monetary terms, e. g. Kenyan shillings ( Kshs) , US
dollars ( US $ ) , or S outh Arican rands ( ZAR) .
Knowledge o market size assists rms in identiying their market
growth and in calculating market share.
 Market growth  this is the percentage change in the market size over
a given period o time, usually a year. This can be based on the market
value or volume. For example, an increase in sales revenue resulting
rom the sale o televisions rom US$5 0 million to US$80 million
indicates a 60-per-cent growth in the market. Sales o smartphones are
on the rise globally, with many consumers nding multiple uses or
the gadget. This has attracted many suppliers o the product because o
the high prot potential. However, this growth is infuenced by several
external actors, such as economic growth patterns, technological
changes, changes in consumer tastes, and income, among others.

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Student workpoint 4.2
Be a thinker
C oca-C ola published 2 01 3 highlights on its website: http://www.
coca-colacompany.com
The company announced that volume sales o its sparkling drinks
were up by 3 % , whilst still drinks had increased by 6% .
As well as providing nancial inormation or investors and
stakeholders, do you think that publishing sales gures in this way
can be a marketing tool or businesses?

 Market share  this is the percentage o one rms share o the total
sales in the market. It is calculated by using the ollowing ormula:

frms sales
Market share % = ___  1 00
total sales in the market

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Market share can be measured by value ( revenue) or volume ( units) ,


j ust like market size. An increase in market share could mean that a Key terms
business is successul against its competitors and has adopted eective
Market size
marketing strategies as a result. This could be associated with increased
prots and result in the business being the key player in the industry. the total sales o all rms
in a market
Measuring market share is important because it could indicate that the
rm is a market leader. A market leader can infuence other businesses Market growth
or competitors to ollow it. Its status as market leader can also aect its the percentage change in the
uture strategy and obj ectives. total market size over a period
The benets o being a market leader include the ollowing: o time
 The market leader will have increased sales, translating to higher prots. Market share
 The business will be able to gain economies o scale, (i.e. a decrease the percentage o one rms
in the average costs o production as a result o increasing its scale o share o the total sales in
operation) . the market
 S ince the market leader could also be the brand leader ( providing the Market leader
product with the highest market share) , the leading brand can act as
a rm with the highest market
a good promotional tool or consumers who would like to associate
share in a given market
with popular brands.
However, when interpreting the market share, careul thought
is needed:
 S ince market share can be measured in dierent ways, by value and
volume, dierent results may be obtained in the same time period.
4 Marketing

 C hanges in the time period and market can infuence market share
results.
 The type o products included may also infuence the calculation o
market share.

Student workpoint 4.3


Be knowledgeable
Table 4.1.3. Diferent sales volumes and values rom diferent companies
Company XYZ ABC PQR
Year 2011 2012 2011 2012 2011 2012
Sales o toys (million units) 550 580 700 740 620 650
Sales o toys ($ million) 25 28 45 48 32 30

Use Table 4. 1 .3 above to calculate the ollowing:


a) Market share o XYZ C ompany by volume in 2 01 1
b) Market share o AB C C ompany by value in 2 01 2
c) Market share o PQR C ompany by volume in 2 01 1
d) Market growth or the whole industry by value rom 2 01 1 to 2 01 2

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4 .1 TH E R O LE O F M AR KE TI N G

Marketing objectives o or-proft organizations and


non-proft organizations (NPOs)
Marketing obj ectives are the goals or targets that businesses aim to
achieve through their marketing department, which are in line with
the organizations overall strategic obj ectives. As earlier noted, many
marketing denitions include the notion that businesses should aim
to satisy consumer needs and wants p roftably. Thereore the sole
marketing obj ective o or- prot organizations is to identiy, design and
develop marketing strategies that will ultimately be protable to the
business. This will involve appropriately applying the elements o the
marketing mix to achieve this obj ective. For-prot organizations use
a market-led approach, where their ocus is purely on the needs and
wants o consumers. They are very responsive to the needs and wants o
consumers and use market research as a way o identiying those needs.
NPOs such as churches, charities, and some schools engage in marketing
activities more or social marketing reasons. In such cases, social
marketers would run campaigns to encourage the public to donate money
or support a certain cause, or example campaigns aimed at helping
orphaned and vulnerable children with ood and clothing. Increasingly,
NPOs are using more complex marketing strategies to achieve their aims,
which include enhancing their image and reputation. They are also
using marketing to inorm and infuence certain behavioural change. For
example, a government may seek to educate the public on the dangers o
smoking and adopting responsible drinking habits.

4 Marketing
A maj or drawback o most NPO s is limited nancing, which seriously
aects their marketing budgets. A number thereore seek to raise unds
through undraising events, seminars and endorsements, in an eort
to be heard and to improve their public relations. This unding is also
linked to their ability to attract potential customers and thereore
receive sponsorships or donations, such as in the case o public sector
colleges. As a result, they are able to gain competitive advantages over
their rivals in the private sector.
Internet marketing, which includes social media marketing, is also
increasing in popularity among a number o NPO s. With the growing
number o global Internet users, a number o charities have raised a lot
o money rom online donations made using PayPal, or example. O ther
NPO s, such as Sandra Lee childrens home in Swaziland, have increased
the number o retail outlets that they seek to raise money rom, by
having money collection containers at the till in most supermarkets.
NPO s have to be ethical at all times and practise a high degree o social
responsibility i they are to continue beneting rom ree publicity rom
other organizations as well as maintaining public interest in their causes.

How marketing strategies evolve as a response


to changes in customer preerences
D ue to a variety o actors, customers preerences have changed
signicantly over the past two decades and businesses have responded in
various ways to meet these new demands. The ways in which marketing
strategies have been adapted to suit these new preerences are discussed

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BMWs marketing strategy


Case study

BM W operates across the globe in a highly competitive


industry  the automotive industry. As a result, BM W
invests heavily in its marketing mix to maintain
its customer base and brand loyalty. However,
competitors M ercedes-Benz and Jaguar are similarly
well invested in marketing campaigns to increase their
market shares while maintaining their brand loyalties.
Previously, BM W used its unique selling point or
proposition (USP) o building high-perormance, high-
quality sports cars with unique handling characteristics
to gain customers attention and loyalty. Slogans such
as Pure driving pleasure and Perection perected
punctuated BM Ws marketing campaign around the
world. Whereas BM W, in the context o the Ansos previously neglected to publicize) and products
M atrix (see Unit 1.3 on Organizational objectives) , had such as the BM W X-series cars were rebranded by
begun with a market-extension strategy into markets taking part in the gruelling Dakar rally. Considered a
such as China and India, it later switched to product race that requires participants to have vehicles with
development as its key strategy. extraordinary uel efciencies, the Dakar rally also
This shit in marketing strategies came about because allowed BM W to challenge one o its main competitors
a market segment became the largest single market in the luxury SUV market  Volkswagen.
in which BM W operated. Customers have developed a H owever, BM Ws shit in market strategy has not been a
new preerence in the last two decades that continues complete success. In an attempt to please the majority
4 Marketing

to grow in strength and popularity  high uel o customers who desire uel-efcient cars, BM W has
efciency. Due to dramatic increases in oil prices, in all lost some o its most loyal customers to competitors.
but the OPEC nations (a PEST actor) , customers have This has largely been a result o changes to the product
sought out vehicles that use less uel to travel urther. element o its marketing mix. In order to increase uel
For example, the Toyota Prius and Tesla car company efciency and to lower carbon emissions, BM W ceased
have thrived because o their environmentally riendly, using V1 0 engines in its M -Power 5 Series cars in
low uel consumption eatures  a result o ocused avour o twin-turbo charged V8 engines that use less
dierentiation. In response to this development, BM W uel. As a result, BM W lost many loyal, high-income
instituted a rat o changes to its marketing strategy. customers who preerred the more powerul V1 0. In
First, as part o product changes in the marketing short, BM Ws pivot towards a new customer preerence
mix, BM W began designing and showcasing vision caused its protability to be damaged to some extent.
concept cars at the largest automotive expos in H owever, with increased market shares in Arica,
the world. N one was more denitive than the BM W N orth America, and Asia, BM Ws medium-risk strategy
i8, which was branded the efcient dynamics appears to have paid o.
concept car. Essentially, it showcased BM Ws latest
uel-efciency technology to the worlds media and Exam-style questions
immediately positioned BM W towards consumers new 1. Dene the ollowing terms:
preerences. BM W also changed many o its promotion
techniques to t this new brand image. Below-the- (a) M arketing mix [2 marks]
line methods including slogans such as Exhilaration (b) M arket share [2 marks]
without excess became BM Ws new ocus and
efcient dynamics became its USP and major product- 2. Analyse how BM W can be customer-
dierentiation tool. The institution o new products ocused. [4 marks]
in BM Ws marketing strategy was paired with new 3. Evaluate the success o BM Ws marketing
promotion strategies. BM W began to emphasize the strategy. [10 marks]
uel efciency o its existing models (which it had

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4 .1 TH E R O LE O F M AR KE TI N G

below in the context o two frms and industries: frst, B MW and


the automotive industry and second, the Multichoice Group and the
television broadcasting industry. E ach o these businesses has adapted
its marketing strategy to improve its proftability by rebranding and
penetrating new markets, or by diversiying.

Multichoices marketing strategy


Case study

The M ultichoice Group has also shited its marketing premium customers (those most likely to purchase
mix and strategy to meet customers preerences. these products) beore reaching other customers
In particular, the arrival o high-denition (H D) via television advertisements (a result o market
technology in a variety o elds, ranging rom segmentation) .
cellphones to cameras and televisions, has drawn a H owever, the implementation o this strategy has
great deal o the customers attention. H owever, unlike not come without some drawbacks  the largest
BM W, it is apparent that M ultichoice does not operate o which is the increased cost to customers. As a
in a highly competitive market. In act, DSTV (owned result o expensive technological upgrades to DSTVs
by the M ultichoice Group) could be considered a broadcasting system to support H D television,
monopoly as it beneted heavily rom the rst mover customers have sufered a price increase to pay or
advantage. H owever, M ultichoice has still changed to both the new systems and the marketing campaign
meet customer preerences to ensure that there is no to promote it. This increase in price also priced out
market gap or new entrants to exploit. prospective customers who could have increased
M ultichoices marketing mix has reocused in terms DSTVs market share. This demonstrates how
o techniques to reach customers rather than using a responding to customer preerences can have negative
shit in ocus like BM Ws. For example, DSTVs premium efects on the customers themselves.
subscribers (those who pay the highest rates) orm

4 Marketing
part o the demographic in Southern Arica that has Exam-style questions
the highest income. As a result, they are the most
technologically aware demographic in Southern 1. Describe two orms o market segmentation
Arica and because o this DSTV has placed a greater relevant or M ultichoice. [4 marks]
emphasis on online advertising on social media and 2. Analyse how efectively M ulitichoices
unique websites. DSTV now has Twitter and Facebook marketing strategy has responded to
pages or customers to ollow and prospective customer preerences. [6 marks]
customers to view that provide the latest inormation
3. With reerence to M ultichoice and to one other
on new products brought to market. For example, the
organisation that you have studied, discuss the
arrival o H D channels such as HD Discovery Showcase
impact o changing technology on promotional
and M -N et H D were rst promoted online to their
strategies. [10 marks]

When compared with B MWs complete change in marketing strategy,


Multichoices shit in marketing methods seems inconsequential.
However, both companies shit in marketing strategy was vital in
maintaining their market share and positions. Each shit was a direct
response to a change in what the customer wanted. Failure to respond
to these needs has dire consequences and certain other companies, or
example Ford and C hevrolet, ailed to make the necessary changes, and
have seen huge drops in market share over the past fve years.
In conclusion, marketing strategies, much like all business strategies,
must adapt to remain relevant. Failure to adapt can result in a loss
o proftability or even total ailure, as in the case o Hummer. B MW
and D STV are j ust some o the many businesses around the world
that have changed their marketing strategies because o changing

257
4 M AR KE T I N G

customer preerences. Whether it is a change in marketing methods, or


reconguration o the marketing mix, marketing strategies can and must
adapt to changing customer preerences.

How innovation, ethical considerations and cultural


dierences infuence marketing
In an increasingly globalized world, where the worlds economies and
markets are integrating, innovation, ethics and culture now aect
marketing strategies more than ever beore. Using specic companies, an
assessment o how these actors have infuenced and continue to infuence
global marketing practices and strategy will be explored, including the
rms responses to changes in these actors. The companies in question
include Nokia, C hevron, B ritish Petroleum, Apple, and Rolls-Royce.

Innovation
First, it is important to consider the responses by businesses to changes
in innovation in terms o their marketing strategies or their products.
There is no industry more exposed to innovation than the highly
competitive technology industry. The technology industry is one with
a great threat o new entrants and erce competition, making Apples
achievements all the more impressive.
For the last six years, Apple has dominated the technology market with
products such as the iPod  , iPad  , and iPhone  . Within the ramework
4 Marketing

o Ansos Matrix ( see Unit 1 . 3 on O rganizational obj ectives) , Apple has


mostly ocused on strategies involving market penetration and product
development to out- compete its main rivals Nokia and Samsung.
Apple has mostly branded its products as tools or a young, dynamic
demographic in need o the newest and most innovative technology.
However, Apples dominance is increasingly being challenged, in part
because o the new marketing strategies o its main competitors.
Nokia has adopted a new global marketing strategy to reinvigorate its
market share. This shit has occurred on two levels: the marketing mix
and the channels through which Nokia markets itsel. Nokias new slogan,
#Switch best sums up these two elements. First, in terms o its products,
Nokia has introduced a new range o cellphones built to beat Apple
called Lumia  . The Lumia  range has a physical design similar to the
iPhone  , yet more styled than the iPhone  . It is sold in a variety o vibrant
colours to suit dierent tastes, unlike the uniorm iPhone  . In terms o
perormance, the Lumia range has higher processing speeds and more
vivid HD touchscreens than the iPhone  . In short, the Lumia  phones are
designed to be superior versions o the iPhone  . This is mirrored by the
promotional campaign or the Lumia range. #Switch is the slogan Nokia
uses to motivate consumers to purchase its cellphones instead o Apples.
Furthermore, #S witch is a Twitter address or customers around the
world to ollow to receive real- time updates about new Nokia products.
When customers use the hashtag on Twitter it automatically spreads the
message to all their ollowers  indirectly advertising Nokias Lumia 
range. Along with a greater emphasis on social networking, Nokia has
used YouTube to brand itsel as the new innovative business in the

258
4 .1 TH E R O LE O F M AR KE TI N G

market. In terms o place, Nokia has also mimicked iS tores by hiring


young, energetic employees to operate its stores and interact with ETHICS
customers. S amsung has also tried to rebrand itsel as a highly innovative The primary concern o most
business with state- o- the- art products such as the Samsung Galaxy businesses is to make a prot. A
range o cellphones. Its advertising campaign centres on showcasing the business marketing strategy is
unique eatures o its products rather than selling a brand like Apple. thereore designed to make the
service or product on oer seem
However, the shit to online advertising has come at a great cost to Nokia  as attractive as possible.
the loss o customers in developing nations. Nokia and many other
However, businesses
companies, such as Sony and Microsot, have ailed to respond to the large
should consider their ethical
customer base that has either no Internet access or access at poor speeds. responsibility to promote their
Markets in China, Sub-Saharan Arica and Latin America have been let products accurately. Many
largely untapped as a result o this. Compared with the Coca-Cola Company countries have a regulating body
and PepsiCo, these companies are lagging behind in terms o major market to monitor advertising (such
penetration. As a result, the capacity or growth is immense; however, Nokia as the Advertising Standards
is ailing to exploit it. In turn, revenues and profts are not being maximized. Authority in the UK and South
Arica) . Ethical advertising is not
only a a moral choice but also a
Ethical considerations pragmatic business decision  the
E thical considerations have also had a maj or impact on the way reputation and sales o a business
businesses brand themselves and their products. The energy and can be severely aected i
resource exploitation industry provides a clear example o this. advertising methods are ound to
be misleading or oensive.
Two maj or events have reshaped the consumers perception o oil
companies in the last 40 years. These are the Exxon Valdes oil spill In 2011, the Coco-Cola company
in 1 989 and the B P D eep Water Horizon spill in 2 01 0. E ach incident was orced to amend an
advert which claimed that its

4 Marketing
caused a great deal o damage to the corporate images o not only B P
Vitaminwater drink was delicious
and Exxon but all oil companies around the world. As a result, most
and nutritious. A number o people
have rebranded themselves to enhance their corporate images and complained on the basis that the
improve their stakeholder relations without which they could not be drink contained high levels o sugar
proftable. For example, C hevron ( ormerly Texaco) now has protecting and so was not nutritious.
the environment as one o its core values and sustainability as one
Examples such as this can be
o its visions. In terms o its marketing mix, particularly promotional rectied airly easily and, or a
techniques, C hevron has branded itsel as a socially responsible company the size o Coca Cola, at
organization interested in the well- being o ordinary people and relatively little cost. For a smaller
innovating energy technologies to solve social issues such as poverty. company, or where the advertising
B P has similarly rebranded by promoting its compensation eorts ater decision has more signicant
the oil spill on Twitter and other social media. It has also promoted its implications, the eects o
new saety regulations and policies online to reach as many customers as unethical or misleading advertising
possible to avoid maj or losses. can be extremely damaging.

This shit in marketing techniques paid o. A year ater reporting a Do some internet research to nd
examples o unethical advertising.
loss, B P declared a US $ 3 . 3 billion net proft in 2 01 2 and has recorded
Can you nd wide-spread press
strong results in the frst quarter o 2 01 3 . S imilarly, Nike has dropped
coverage? What sort o criticisms are
many o its sponsorship deals with athletes who have allen rom grace made, and how might these aect
in the publics eye. Lance Armstrong and O scar Pistorius were once the reputation o the businesses?
among Nikes strongest representatives but have been dropped because
o their transgressions. In short, Nike, B P, and C hevron all recognize
the value o their corporate image and have attempted to ensure TOK discussion
that their image is not damaged by incidents and sponsorship deals To what extent are marketing
alike. I consumers dislike an organization, they oten boycott that practices a refection o the
organization, causing it to lose proftability and possibly even causing it values o a given time and
to close down. culture?

259
4 M AR KE T I N G

However, many o the oil companies shits in marketing practices


and strategies have resulted in more erce opposition rom the public
and other stakeholders. C ompanies such as Royal D utch S hell and
C hevron have been accused o double standards by pressure groups
such as Greenpeace because, while they market themselves as socially
responsible, they continue to damage the environment in extraction
processes. This causes regular fuctuations in their share prices. In
addition, shareholders are uncertain about their long- term protability
because o ear o new legislation that would enormously increase the
costs o production. However, the adoption o new marketing strategies
has largely helped to mitigate the eects o such market uncertainties.

Cultural diferences
Finally, cultural dierences also have a heavy impact on marketing
strategies used by businesses around the world. Rolls- Royce and Aston
Martin are two luxury vehicle manuacturers that have beneted rom
an understanding o cultural dierences.
For example, C hina has seen massive economic growth and large
increases in income or a relatively young consumer base. This has led
to an increase in demand or E uropean brands such as Aston Martin
and Rolls- Royce, which are seen as more modern and desirable among
young C hinese. As a result, Aston Martin changed its marketing strategy
in C hina by targeting younger customers than in Europe and North
America. S ponsorship deals with the James B ond ranchise and the
4 Marketing

Gotham C ity car club are all aimed at enticing new young customers
to its products. Furthermore, both Aston Martin and Rolls- Royce have
Facebook pages to showcase their latest products that were initially
designed or C hinese markets.
In the ast- ood sector, McD onalds and KFC have introduced Halal oods
to cater or customers o the Muslim aith. This has led to increased
revenues as more market gaps have been lled and exploited.
O verall, innovation, ethical considerations, and cultural dierences
have had huge impacts on marketing strategies and practices around
the world. The most common change in marketing practices appears to
be the increased use o social media to interact directly with customers
on a regular basis. S imilarly, a large change in marketing strategies has
been to target the youth market more directly, as in the cases o Aston
Martin and Rolls- Royce in C hina and Nokia, Apple, and S amsung across
the globe. The businesses discussed above are but a ew examples o the
many competing rms globally; however, they do provide grounding or
one overall conclusion: businesses must adapt their marketing practices
and strategies to meet changes as a result o innovation, ethics, and
culture i they are to maximize revenues and prots on a global scale.

260
4 .1 TH E R O LE O F M AR KE TI N G

revision checklist
 Marketing is essentially about getting the right product to the right
customers at the right price at the right time. It involves working
with other business unctions to satisy the needs to the customer.
 Marketing o goods concerns the 4 Ps o the marketing mix while
marketing o services involves 3 additional Ps o the marketing mix
 Product orientation ocuses on producing the product rst beore
selling it while market orientation involves carrying out market
research beore producing and selling the product.
 C ommercial marketing activities determine consumer needs and
wants beore using appropriate strategies to market the product.
Social marketing aims at infuencing a positive change in individual
behaviour and improvement in societal well- being. S ocial media
marketing ocuses on the use o the internet through social
networking websites to market a rms product.
 Market size looks at the total sales o all rms in a market while
Market share is the percentage o one rms share o the total sales in
the market.
 The main marketing obj ective o or- prot organizations is to
identiy, design and develop marketing strategies that are protable
to the business. O n the other hand, the marketing obj ective or Not
or prot organisations ( NPO s) is mostly or social marketing reasons.

4 Marketing

261
4 M AR KE T I N G

Practice question
B aj aj
In India, the market leader in motorbike manuacturing is Bajaj, with
a 3 4% market share. There are many market segments or motorbikes.
For some target markets, price is the most important actor. O ther
target markets are willing to pay more or extra eatures, such as better
styling*. Bajaj is market orientated and oers 1 2 dierent models to
satisy the needs o various consumer proles.
Bajaj has an extensive distribution network even in remote areas. Twice
a year, Bajaj carries out primary market research through surveys, ocus
groups and interviews with their customers about the quality, reliability
and saety o the Bajaj motorbikes. This is particularly important in
remote areas where there are ew garages to either service or repair them.
In the last 1 0 years the company has also gained a signicant share o
other markets, including the Philippines, C olombia and Taj ikistan. This
was done through strategic alliances. O ne o the companys long- term
obj ectives is this continued penetration in international markets.
For its international markets as in India, Bajaj is determined to make
sure that each model o motorbike satises local needs and preerences.
O ne proposal is to use social media marketing to rst appeal to
international markets.
[Source: adapted from Globality: Competing With Everyone From Everywhere For
4 Marketing

Everything New York and Boston: Business Plus, 2008]

a) O utline briefy the dierence between market orientation


and product orientation. [2 marks]
b) C omment on the importance o market share and market
leadership or Bajaj. [6 marks]
c) Analyse the useulness o social media marketing or Bajaj. [5 marks]
d) E valuate how Bajaj might have to change its marketing
strategies in response to customer preerences [7 marks]
IB , May 2 01 0

* styling: the various features of style or design that consumers may prefer

262
4.3
4.2 Sales
Marketing
forecasting
planning
(HL(including
only)
introduction to the four Ps)
By the end o this chapter, you should be able to:
 state the elements o a marketing plan
 explain the role o market planning
 comment on the four Ps of the marketing mix
 prepare and analyse an appropriate marketing mix or a particular
product or business
 discuss the efectiveness o a marketing mix in achieving marketing
objectives
 distinguish between target markets and market segments
 identiy possible target markets and market segments in a given
situation
 distinguish between niche market and mass market
 analyse how organizations target and segment their market and

4 Marketing
create consumer proles
 draw a product position map/perception map and comment on it
 explain the importance o having a unique selling point/proposition (USP)
 evaluate how organizations can diferentiate themselves and their
products rom competitors.

the elemens of a markeing plan


A marketing plan is a detailed document about the marketing strategies
that are developed in order to achieve an organizations marketing
obj ectives. Marketing departments need adequately to plan and
prepare themselves in order to ace the competition in the market. The
marketing plan is likely to include some o the ollowing components:
 marketing obj ectives that are S MART ( specifc, measurable,
achievable, relevant or realistic, and time- specifc) , or example
increasing sales by 6 per cent in the next year
 key strategic p lans, which are steps that provide an overview o
how the marketing obj ectives will be achieved, or example plans on
how to sell new products in existing markets
 detailed marketing actions providing inormation on the specifc
marketing activities that are to be carried out, or example which
pricing strategies will be used and how the products will be distributed
 the marketing budget, including the fnance required to und the
overall marketing strategy.

263
4 M AR KE T I N G

the role of markeing planning Key term


E ssentially, marketing planning is a process that involves an
organizations decision about which marketing strategies would be Marketing planning
eective in attaining its overall corporate or strategic obj ectives. To the process o ormulating
acilitate this, a detailed marketing plan is drawn up. marketing objectives
and devising appropriate
The benefts o marketing planning marketing strategies to meet
 Marketing planning helps a rm in identiying potential problems those objectives
and seeking solutions to them.
 S etting S MART obj ectives improves the chances o success o a rms
marketing strategy.
 S haring the marketing plan with other business departments
improves coordination and provides the whole organization with a
clearer picture or sense o where it is heading.
 D evising a marketing budget ensures that resources are not wasted
on unprotable activities.
 A clearly spelled- out plan could improve employees motivation and
inspire condence in them about the organizations uture.

The limitations o marketing planning


 Marketing plans may become outdated i organizations are not quick
to consider changes in market conditions.
4 Marketing

 The process may consume considerable resources in terms o time,


expertise, and money in designing the plans.
 Failure to prioritize marketing obj ectives may make it dicult or
rms to tell whether they are meeting them.
To be eective, marketing planning needs to be a refective exercise
where organizations constantly review and evaluate their marketing
policies. They need to do this i they are to survive in todays competitive
business environment.

the four Ps of he markeing mix


C entral to market planning is the development o a rms marketing
mix. This is a collective term that includes the key elements that ensure
the successul marketing o a product. These elements are reerred
to as the four Ps o the marketing mix, namely: p roduct, p rice,
p romotion, and p lace. These are explained briefy below.
 Product  this is the good or service that is oered in the market. A good
such as a television is tangible while a service such as health insurance
is intangible. Products should aim to satisy the needs and wants o
consumers. So, whether providing a new or existing product, rms need Key term
to ensure that the consumers interests are taken into consideration i Marketing mix
they are to create a unique selling point or proposition (USP) .
the key elements o a
 Price  this is the amount consumers are charged or a product. It marketing strategy that
indicates the value consumers perceive the product to have. For ensure the successul
example, when the Apple iPad 1  was rst introduced, consumers marketing o a product
paid a high price or it because o its perceived good quality. O n

264
4 . 2 M AR KE TI N G PL AN N I N G ( I N CLU D I N G I N TR O D U CTI O N TO TH E FO U R  PS  )

the other hand, second- hand clothes are priced lower than brand-
new ones because they are seen as having a lower value. S etting
an appropriate price can be dicult or businesses because o the
sensitive nature o consumer purchasing behaviour and the various
internal and external actors that infuence these behaviours.
 Promotion  this reers to the various ways in which consumers
are inormed about and persuaded to purchase a product. The
communication methods used to attract the consumer to buy
the product are very important here. A rm may use above- the-
line promotion such as television advertising or below- the- line
promotion such as sales promotions, or a combination o both, in
order to convince consumers to buy the product.
 Place  this reers to a products location or channels o distribution used
to get the product to the consumer. Products can be purchased in shops
or over the Internet. Intermediaries, who include wholesalers, retailers,
and agents, are also used to get products to where consumers need them.
For example, large supermarkets such as Shoprite or Nakumatt have
a number o retail outlets distributed countrywide to ensure that their
products are available to as many consumers as possible.

An appropriate marketing mix


An appropriate marketing mix ensures that consumers needs and
wants are adequately met. This requires businesses to produce the
right product, charged at the right price, available at the right place and

4 Marketing
communicated through the right promotion channels. I the message o
the marketing mix is not clear and ocused, a rm could risk potential
loss in sales, which will aect its long- term protability. C onsumers may
not identiy with the product and thereore will not buy it. Examples o
inappropriate marketing mixes include:
 advertising an expensive car in a colourul childrens magazine
 selling an exclusive perume in a stall where second-hand clothes are sold
 a real- estate agent attempting to sell houses in a vegetable market.
To be eective and in order to achieve its marketing obj ectives, an
appropriate marketing mix or a business will need to:
 be well coordinated so that the elements consistently complement
each other
 be clear, ocused, and not abstract or ambiguous
 consider the market it is aiming to sell the product to
 look into the degree o competition that its product aces
 target the right consumer.

Student workpoint 4.4


Be a thinker
1 . Using an organization o your choice, discuss the elements in the
marketing mix that you think your organization would prioritize
as most important.
2 . Explain the actors that limit an organizations ability to achieve
its desired marketing obj ectives.
 .
265
4 M AR KE T I N G

Market segmentation, targeting and


consumer profles
Market segmentation
A segment reers to a sub-group o consumers with similar characteristics
in a given market. Market segmentation is the process o dividing
the market into smaller or distinct groups o consumers in an eort
specifcally to meet their desired needs and wants.
Markets may be segmented in the ollowing ways:
 D emographic segmentation  this considers the varying
characteristics o the human population in a market, which include:
 age  babies will need diapers while teenagers will want cellphones
 gender  there is a higher demand or personal care products or
women compared to men
 religion  businesses will fnd it difcult to sell pork products in a
country dominated by Muslims
 amily characteristics  here, some businesses have used creative
acronyms to segment their markets; or example, O INK ( one
income, no kids) targets young singles while D INKY ( double
income, no kids yet) targets young married couples
 ethnic grouping  radio stations in many Arican countries
4 Marketing

broadcast in languages that are geared towards a particular tribe.


 Geograp hic segmentation  this is where the market is divided
into dierent geographical sectors and may consider actors
including:
 regions in a country where consumers reside  or example,
businesses could segment products dierently to urban and rural
consumers in the same country
 climatic conditions  or example, heavy sweaters will be in high
demand in Tibet compared to B otswana, which is usually quite
hot throughout the year.
 Psychograp hic segmentation  this divides the market based on
peoples liestyle choices or personality characteristics, such as:
 social and economic status  some high- income- earning
individuals belong to particular luxury clubs that exclude people
not o a certain wealth status
 values  peoples morals and belies need to be considered here,
or example customer values regarding recycling o products or
animal testing.

The advantages of segmentation


 S egmentation helps businesses identiy existing gaps and new
opportunities in domestic as well as international markets.
 D esigning products or a specifc group o consumers can increase
sales and, through this, proftability.

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4 . 2 M AR KE TI N G PL AN N I N G ( I N CLU D I N G I N TR O D U CTI O N TO TH E FO U R  PS  )

 Segmentation minimizes waste o resources by businesses through


identiying the right consumers or their products.
 B y dierentiating their products, businesses could diversiy and
spread their risks in the market and so increase market share.
However, market segmentation can be expensive in terms o research
and development, production, and promotion as a frm attempts to reach
a large segment o actual and potential consumers.

Targeting
Ater segmenting its market, a frm must now decide on its target
market. A target market consists o a group o consumers with
common needs or wants that a business decides to serve or sell to. Key terms
Targeting is thereore the process o marketing to a specifc market
segment. Targeting can be carried out using the ollowing strategies: Market segment
 Undierentiated marketing  also known as mass marketing, in a sub-group o consumers
this strategy a frm ignores the dierences in the specifc market with similar characteristics in
segments and targets the entire market. Here businesses consider the a given market
common needs or wants o consumers in the market and aim to sell
Market segmentation
their products to a large number o customers in order to maximize
their sales. Examples o companies that do this are S amsung, Nokia, the process o dividing the
LG, D ell, HP, and C oca C ola. market into distinct groups o
consumers so as to meet their
 D ierentiated marketing  a dierentiated or segmented
desired needs and wants
marketing strategy targets several market segments and develops

4 Marketing
appropriate marketing mixes or each o these segments. For Target market
example, Toyota designs cars or the dierent socio- economic status
a group o consumers with
o people in the world. With segmented marketing, frms hope to
common needs or wants that
gain a stronger position in each o their segments and so increase
a business decides to serve
their sales and the market share o their brands.
or sell to
 C oncentrated marketing or niche marketing  this is a strategy that
appeals to smaller and more specifc market segments. It is a good
Targeting
strategy or smaller frms that may have limited resources. These frms the process o marketing to a
may serve market niches where there are ew competitors and take specic market segment
advantage o opportunities that may have been overlooked by larger
frms. Products provided by businesses that operate in niche markets
Niche market
include Apples iTunes  and Rolls-Royce cars. B usinesses using this a narrow, smaller or more
strategy can market their products more efciently and eectively by specic market segment
targeting consumers it can serve best and most proftably.
Mass market
Consumer proles a large or broad market that
ignores specic market
Consumer profles consist o inormation provided about the characteristics o segments
consumers o a particular product in dierent markets. These characteristics
include gender, age, social status, and income levels. Consumer profles may Consumer profle
also consist o details o the spending patterns in terms o the number and the characteristics o
requency o products bought by consumers. For segmentation and targeting consumers o a particular
to be successul, it is very important that frms have good knowledge o who product in diferent markets
their consumers are. This will enable them to target their products eectively based on their gender, age,
to the right consumers, using appropriate marketing strategies. In addition, and income levels, among
a frm aware o its target market has a cost-eective method o selling its other characteristics
products as it will make savings on promotion costs.

267
4 M AR KE T I N G

niche Markeig  toyoa


Case study

Once Toyota took the plunge, it pursued an efective


niche marketing plan. It didnt promote the Prius in
just any media. It ocused on media outlets that were
watched, read or listened to by people concerned
about the environment. For example, it heavily
promoted the car through environmental groups and
their publications. As the only game in town at that
time, Toyota not only dominated the niche  it was the
niche. Today, with increased competition in this niche
market, the Toyota Prius is still highly regarded as the
niche leading brand.
Simply identiying holes in the market and lling them,
is, oten times not enough. It takes extensive research,
careul planning, execution and extreme adversion to risk
Toyota, a huge company with a global ocus on the to successully develop, introduce, execute and dominate
auto business, is an excellent niche marketer. They a niche market with a specic product or service.
were one o the rst companies to realize there was
a group o car buyers who would be very interested Adapted rom http://www.smartmarketingllc.
in environmentally riendly cars. Toyota answered com/2012/05/07/successul-niche-marketing/
this need with development o the legendary Prius,
the rst mass production hybrid car. Where other car Exam-style questions
manuacturers saw Toyota taking a huge risk, Toyota 1. Dene the term niche market. [2 marks]
saw it as an opportunity to identiy a new niche and
4 Marketing

establish its brand in that niche. In marketing, it is oten 2. Explain the statement Toyota not only
the rst brand to market, i executed successully, that dominated the niche  it was the niche. [4 marks]
can own the niche market with their brand. 3. Discuss the likely reasons or the success
o the Toyota Prius. [1 0 marks]

Student workpoint 4.5


Be a thinker
S uggest the possible consumer profle
or someone who buys the ollowing:
a) Louis Vuitton handbag
b) Yamaha motorbike
c) Nintendo Wii game console.

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4 . 2 M AR KE TI N G PL AN N I N G ( I N CLU D I N G I N TR O D U CTI O N TO TH E FO U R  PS  )

PepsiCo targeting mass marketing will cater to diferent segments


Case study

o consumers
Beverage and snacks maker PepsiCo India is gunning or split its go-to-market (distribution) model into three
the bottom-o-the-pyramid consumer or the rst time divisions. Theres a premium arm or distributing
in the country, as its chairman, Manu Anand, drives the Tropicana juices, Gatorade sports drinks and Quaker
New York-based $60 billion parents target to reach the oats; a mid-rung one or aerated drinks like Pepsi and
next one billion consumers in the value segment. Slice and snacks like Kurkure and Lays; and a division
In his rst media interaction since he succeeded catering to mass products like Lehar Iron Chusti.
Sanjeev Chadha in January this year, Anand tells ET Had we put, or example, Iron Chusti in the Kurkure
that PepsiCo is creating verticals to cater to dierent system, it would have been another product, hence the
segments o consumers, across unctions like sales, decision to set up dedicated sales teams. Communication
operations, distribution and marketing. and marketing or these products will be dierent too,
PepsiCos low-priced products will be aimed at says Anand. Lehar Chusti packs, or example, are labelled
330 million consumers graduating rom the bottom-o- in Telugu. We need to act like local players, but oer
pyramid to the socio-economic B and C classes. products that dont compromise on taste or quality.
The move is in line with global chairman Indra Nooyis CHEAPER PRICE POINTS
target to generate $30 billion in revenues rom healthier
products-internally called better-or-you and good-or- Low-margin products like Iron Chusti will obviously not
you products-by 2020, up rom the existing $10 billion. be protable in the beginning, but PepsiCo is hoping
India will be the rst country in the PepsiCo system to that the products will achieve scale in about 24 months.
target the value segment with multiple products. Anand says even in PepsiCos core business o snacks,
Its a big transormation or us; we are targeting the such as Kurkure and Cheetos, the rm is stepping up

4 Marketing
next tier o consumers. We are looking at everything ocus on 5 and 3 packs. These packs are growing the
dierently and doing this in a very structured way. But astest among PepsiCos oods arm and contribute
its not as i we are under-investing in our core business; 45-50% to the divisions oods sales. While in aerated
its more about creating new consumption spaces, says drinks, selling bottles and cartons or 5 amounts to
Anand, who has been with PepsiCo or the past 17 years. sacricing protability, PepsiCo will look at products at
5 through its joint venture with Tata Global Beverages.
VERTICAL MOVEMENT Anand says three-ourths o PepsiCo consumers are
NourishCo, PepsiCos vertical in partnership with Tata common to oods and beverages. But beverages are
Global Beverages, has just rolled out its rst product, more asset intensive while the oods business is more
a lemon-avoured glucose-based drink, called Gluco systems-driven.
Plus, in M aharashtra. It is priced at 5. This new strategy comes at a time when ood ination
Lehar Foods, another vertical, is a separate operating is running high. Anand says hes using all global and
entity, which will launch value snacks priced at 5 and local resources to minimise costs, including stepping
lower. Its other two businesses are core aerated drinks up conversion efciencies, using cheaper sources o
and snacks. energy and better commodity procurement.
An innovation vertical has launched biscuits and Adapted rom http://articles.economictimes.indiatimes.
snacks priced at 2 under the Lehar Iron Chusti brand in com/2011-06-06/news/29625847_1_sanjeev-chadha-
Andhra Pradesh initially. This line-up o healthy oods manu-anand-pepsico-india
is targeted at women under Project Asha, PepsiCos
codename or N ooyi-commissioned plan to develop Exam-style questions
low-priced nutritional oods or the poor. 1. Describe two orms o market segmentation
Anand, back in India ater 07 when he was heading the relevant or Pepsico in India. [4 marks]
oods division, says what has changed most at the rm 2. Analyse how PepsiCo caters or dierent
in the past our years is its sheer scale o operations. segments o consumers in India. [6 marks]
While separate operations, sales and marketing teams 3. Justiy PepsiCos new strategy in India. [8 marks]
have been set up or the verticals, PepsiCo has urther

269
4 M AR KE T I N G

Posiioning
Product positioning involves analysing how consumers defne or perceive
a product compared to other products in the market. As consumers are
sometimes aced with an overload o inormation, in an eort to simpliy
their purchasing process they categorize products and position them
accordingly. With this in mind, marketers must thereore plan positions
that will give their products a competitive advantage in the market. An
eective tool they could use in planning their positioning strategies is
a position or perception map. This is a visual representation o how
consumers perceive a product in relation to other competing products.
The frst step in positioning requires marketers to identiy product aspects
that consumers fnd important, or example quality, price, and image.
Second, the frm will need to choose the key eatures on which to develop
its positioning strategy. Finally, the frm should communicate its desired
position to its target customers with the support o its marketing mix.

The importance o a position map


Prestigious to own High
 A position map could help a frm to establish which are its close
competitors or threats in the market.
M ercedes-Benz
 It also helps identiy important gaps or opportunities in the market Jaguar
that the frm could fll by creating or oering new products. BM W M itsubishi

Financial eectiveness
 It is a simple and quick way o presenting usually sophisticated M otors
Toyota
research data. Ford
4 Marketing

 It helps a frm in targeting specifc market segments to best satisy High Audi Low
H onda
consumer needs and wants.

Volvo
the unique selling poin or proposiion (USP) Proton
This is a eature o a product that dierentiates it rom other competing
products in the market. The dierentiating actor is what makes a product Low
unique and helps to explain why consumers choose one product over Figure 4.2.1. A position map or cars
another.
Source: http://www.12manage.com
The importance o having a USP
A US P:
Key terms
 helps to establish a frms competitive advantage in its product
oering and, as a result, helps to attract more customers Product position map/
 leads to customer loyalty as customers can identiy something special perception map
about the product in comparison to rival products, resulting in a visual representation o how
increased sales. consumers perceive a product
in relation to other competing
B y appropriately using the elements o the marketing mix, businesses
products
can eectively dierentiate themselves and their products rom
competitors. Here are some examples: Unique selling point/
proposition (USP)
 Product: Apple is world renowned or its unique product quality in
its iPad  , iPod  , and Mac  computer products. a products eature that
diferentiates it rom other
 Price: C ellphone subscriber S aaricom has always managed to oer competing products in the
aordable prices to its consumers in the Kenyan market despite the market

270
4 . 2 M AR KE TI N G PL AN N I N G ( I N CLU D I N G I N TR O D U CTI O N TO TH E FO U R  PS  )

existing competition, and the company has still managed to post very
high ater- tax profts.

 Place: C oca C ola has managed to dierentiate itsel well globally by


having a wide range o retail outlets providing its product close to its
consumers.

 Promotion: Nikes Just do it slogan is a powerul promotional tool


or the company because it emphasizes the action element, which is
an eective strategy in encouraging customers to go ahead and buy
Nikes products.

Unique selling points- some examples


Case studies

Successul businesses usually have a unique eature


which diferentiate them rom their competitors. H ere
are three examples o businesses which have thought
creatively about their USPs:
1. Love With Food ( LoveWithFood.com)
Love with Food sells organic snack-boxes which are
delivered directly to customers or $10 a month. For
every box sold, the company donates a meal to a ood
bank to eed hungry children. This creates a unique
buying experience or their customers that they

4 Marketing
wouldnt get anywhere else. Love with Food ofers
something diferent, while still selling exactly what
their customers want.
2. Flinja ( Flinja.com)
Flinja aims to solve a huge problem that college
students and alumni have; nding a job. Their unique
selling proposition is clear, and most importantly, Exam-style questions
benet-driven. Flinja helps college students and alumni 1. With reerence to H ear & Play, describe two
nd jobs. They have dened their target market and aspects o a USP (Unique Selling Point) . [4 marks]
stated how theyre going to help them solve a problem. 2. With reerence to Flinja, explain the link
3. Hear and Play between target market and USP. [4 marks]
M any websites and businesses help people learn 3. Discuss whether Love With Foods USP is
music. H ear and Play ocusses specically on learning entirely ethical. [8 marks]
to play the piano by ear, making it ideal or people who
dont want to or cant read sheet music.

Student workpoint 4.6


Be an inquirer
1 . D raw a position map o an industry o your choice and identiy
the products or brands on oer.
2 . Using the inormation in question 1 , why is it important or the
organizations oering those products and brands to have a USP?

271
4 M AR KE T I N G

revision checklist
 A marketing plan is an essential document that concerns the
development o marketing strategies that aid in achieving an
organizations marketing obj ectives.
 The our Ps o the marketing mix are product, price, promotion
and place.
 An appropriate marketing mix or a business ensures that consumers
needs and wants are sufciently met by producing the right
product, charged at the right price, available at the right place and
communicated through the right promotion channels.
 A target market is a group o consumers with common needs or
wants that a business decides to sell to while a market segment
is a sub- group o consumers with similar characteristics in a
given market.
 A mass market is a broad market that ignores specifc market TOK discussion
segments while a niche market ocuses on a narrow market segment
To what extent does marketing
 The primary ocus o product positioning is to analyse how respond to, or change, the
consumers perceive a frms product compared to other products perceptions of individuals and
in the market in an eort or these frms to gain a competitive societies?
advantage in the market.
4 Marketing

272
4 . 2 M AR KE TI N G PL AN N I N G ( I N CLU D I N G I N TR O D U CTI O N TO TH E FO U R  PS  )

Practice question
Marketing in a new technological environment, Second Life
Second Life is an online, virtual (computer generated) world that exists only
on the Internet. Using a 3D virtual character, subscribers lead a second lie,
mimicking everything rom visiting a nightclub to a career in real estate.
Millions o dollars change hands daily online as residents create, buy and
sell virtual products and services, which may include designer clothes,
vehicles, or casinos. Second Life registered its one millionth resident in late
2006 with one user making more than US$1 million buying, selling, and
renting virtual property.
Many companies such as D ell, IB M, and Kmart use Second Life to market
products or services to a niche audience and to target younger customers
and technologically aware market segments. D ell, or instance, has an
in- world island with a virtual replica o the D ell actory and a retail
store where customers order PC s to be delivered to their virtual homes.
O n the island, customers pay in Linden dollars, the ocial Second Life
currency. The Linden can be converted into US dollars and vice versa.
Rates fuctuate, but over the last ew years have remained airly stable as
2 5 0 Linden dollars ( L$ ) to the US dollar. C ustomers can also order a real
Dell computer that can be delivered to their real home and pay in US
dollars. IB M recently purchased 1 2 islands within Second Life or virtual
business training and simulations. Musicians and news organizations,
including the B B C and the Reuters news agency, have a presence within

4 Marketing
Second Life. The B B C , which is requently an early adopter, uses the
island to debut new bands at virtual rock estivals.
According to Business Week, the biggest Second Life design shops charge
corporate clients between US $ 1 0, 000 and US $ 2 00, 000 to establish a
virtual world presence.
[Source: adapted from http://secondlife.reuters.com and http://whatis.techtarget.com]

a) D ene the term niche market. [2 marks]


b) Explain the advantages to maj or corporations, like Dell and IBM,
o market segmentation and consumer targeting. [8 marks]
c) D iscuss how rms may adapt their marketing strategies and
marketing mixes to changes in technology such as the
growth o Second Life. [1 0 marks]
IB , May 2 008

273
4.3 Sales forecasting (HL only)
By the end o this chapter, you should be able to:
 calculate up to a our-part moving average
 plot the sales trend lines and explain the relationship between the
trend and the actual sales revenue fgures
 prepare a orecast (including seasonal, cyclical and random
variation) using given data
 examine the benefts and limitations o sales orecasting.

S ales orecasting is the process o predicting what a rms uture sales


will be. It uses quantitative methods to estimate the uture sales levels
and trends over a specied period o time. Accurately predicting the
uture reduces uncertainty, helps in management o stock and cash
fow, and ensures better planning or growth. B usinesses need sales
orecasting inormation to assist them in making intelligent business
decisions. However, making accurate predictions is a complex process
and may be aected by numerous external actors.
4 Marketing

time series analysis


This is a quantitative sales orecasting method that predicts uture
sales levels rom past sales data. It relies on time series data, which is
sales inormation that businesses have kept over a given period since
it occurred. The businesses then rely on this past data in an attempt to
predict the uture. There are certain aspects that need to be identied in
time series data:
 The trend  this is a visible pattern noted ater inputting the past
sales data. This may indicate the rise and all o sales over a given
period.
 S easonal fuctuations  these are changes in demand because o
the varying seasons in the year. An example o seasonal variation
is when a business experiences an increase in sales o clothing at
the beginning o a new year but experiences a decline in sales in
the middle o the year. Seasonal variations are usually repeated and
occur within one year or less.
 C yclical fuctuations  these are variations tied to the business
cycle in an economy. For example, sales could be on the rise during
the growth phase but declining during a recession. C yclical variations
can extend or more than one year.
 Random fuctuations  these are notable changes or fuctuations
that stand out rom a given trend. For example, there may be a
sudden increase in the demand or ice- cream during a rare warm
day in winter. Random variations are unpredictable and can occur at
any time.

274
4 . 3 S A L E S F O R E C A S T I N G ( H L O N LY )

Moving averages Key terms


This is a useul indicator in sales orecasting or identiying and
emphasizing the direction o a trend. It is a more accurate and complex Sales forecasting
method than simply predicting uture sales rom actual sales data. This is the process o predicting the
because it helps to smooth out any fuctuations rom sales data. uture sales o a frm
Table 4.3.1. Yearly sales o a calculator manuacturer Time series analysis
Year 1 2 3 4 5 6 7 8 a quantitative sales
orecasting method that
Sales (US$000) 400 600 800 650 700 850 950 1,200
predicts uture sales levels
rom past sales data
Calculating a three-year moving average
Using table 4.3 . 1 , the ollowing steps can be used to calculate the three-
year moving average:
1. C alculate the mean sales or the rst three years. For example, the
( 40 0 , 0 0 0 + 6 0 0 , 0 0 0 + 8 0 0 , 0 0 0 )
mean rom years 1 , 2 and 3 is US$ ______________________3
= 600,000.

2 . D o the same or the next three sets o data:


(600,000 + 800,000 + 65 0,000)
US $ ______________________
3
= 683 , 3 3 3 or years 2 , 3 and 4.
3 . The same process should be used or the ollowing sets o threes:
(800,000 + 650,000 + 700,000)
3 , 4, 5 : US $ ______________________
3
= 71 6, 667
(65 0,000 + 700,000 + 850,000)

4 Marketing
4, 5 , 6: US $ ______________________
3
= 73 3 , 3 3 3
(85 0,000 + 950,000 + 1 200,000)
6, 7, 8: US $ _______________________
3
= 1 , 000, 000
The above data is summarized in table 4.3.2 and gure 4.3 .1 .

Table 4.3.2. Sales revenue with three-year moving average (trend)


Year 1 2 3 4 5 6 7 8
Sales (US$000) 400 600 800 650 700 850 950 1,200
Trend (three-year moving 600 683.333 716.667 733.333 1,000
average) (US$000)

1400

1200

1000

800
Sales

600

400
sales (US$000)
200 trend (three-year moving
average) (US$000)
0
1 2 3 4 5 6 7 8
Years
Figure 4.3.1. Actual sales and the three-year moving average trend or the
calculator manuacturer

275
4 M AR KE T I N G

Calculating a four-year moving average


C alculating the our- year moving average is a bit more complex than
calculating the three- year moving average. In this case, it makes use o
centring. This involves the use o a our- year and an eight- year moving
total to establish a mid- point. For example, the calculation o the frst
our- year moving total is as ollows:

(i) Summation o sales o years 1 , 2, 3 and 4 (US$) : 400,000 + 600,000 +


800, 000 + 65 0, 000) = 2 , 45 0, 000

C alculation o the next our-year moving total is:

(ii) S ummation o sales in years 2 , 3 , 4 and 5 ( US $ ) : ( 600, 000 +


800, 000 + 65 0, 000 + 700, 000) = 2 , 75 0, 000

C alculating the frst eight- year moving total involves adding the
summations in ( i) and ( ii) ( US $ ) : 2 , 45 0, 000 + 2 , 75 0, 000 = 5 , 2 00, 000
To get the frst our-year centred moving average, the eight- year moving
total is divided by 8 as ollows ( US $ ) : _______
5 ,2 00,000
8
= 65 0, 000. It is important
to note where this value is placed in the table. It will be placed in the
line where year 3 is positioned.
Using the same approach as above, the next eight-year moving totals and
our-year moving averages are summarized in table 4.3.3 and fgure 4.3 .2 .
4 Marketing

Table 4.3.3. Sales revenue with four-year moving average (trend)

Year 1 2 3 4 5 6 7 8
Sales ($000) 400 600 800 650 700 850 950 1,200
Eight-year moving total ($000) 5,200 5,750 6,150 6,850
Trend (four-year moving
650 718.75 768.75 856.25
average) ($000)

1400

1200

1000

800
Sales

600

400
sales (US$000)
200 trend (four-year moving
average) (US$000)
0
1 2 3 4 5 6 7 8
Years
Figure 4.3.2. Actual sales plotted against the four-year moving average (trend)

Extrapolation
O nce the trend line has been drawn, this line can be extended using a
line o best ft, shown by a dotted line, to predict uture sales. This is
276
4 . 3 S A L E S F O R E C A S T I N G ( H L O N LY )

known as extrap olation. The trend lines rom fgures 4. 3 . 1 and 4.3 .2
can be extrapolated to provide an estimated sales value or uture years. Key terms
Figure 4.3 .3 shows how a trend line can be extrapolated. Moving average
sales orecasting method that
identies and emphasizes the
Data quality measure

direction o a trend
Extrapolation
an extension o a trend line to
predict uture sales
Variation

2007 2008 2009 2010 2011


diference between actual
Time (year) sales and trend values
Figure 4.3.3. Example o an extrapolated trend line
Source: ops.hwa.dot.gov

Calculating variations
Variation is calculated by getting the dierence between actual sales and
the trend values. This is shown in table 4.3 .4.

Table 4.3.4. Sales revenue with variations in each year

4 Marketing
Year 1 2 3 4 5 6 7 8
Sales (US$000) 400 600 800 650 700 850 950 1,200
Trend (our-year moving average) 650 718.75 768.75 856.25
(US$000)
Variation in each year (US$000) 150 -68.75 -68.75 -6.25

The average cyclical variation using the above table can be


calculated as the sum o variations over the period divided by the
number o years within the period:

( US$ : 1 5 0, 000 - 68, 75 0 - 68, 75 0 - 6, 2 5 0)


____ = 1 , 5 62 . 5
4

I, or example, the extrapolated trend value ( in US$ ) was 1 , 400, 000 or
year 9, then adding 1 5 62 .5 gives a more accurate predicted uture value
o 1 , 401 , 5 62 .5 or year 9.
S easonal variations can also give a more accurate prediction by
calculating the average seasonal variation in each quarter ( three-month
period) . For example, i in the frst quarter o year 5 the variation was
- 2 5 , 5 00 and the variation in the frst quarter o year 6 was - 40, 3 00,
then the average seasonal variation or the frst quarter in those two
years is calculated as ollows:
( - 2 5 , 5 00 - 40, 3 00)
__ = - 3 2 , 900
2

277
4 M AR KE T I N G

Assuming that the predicted sales revenue or year 7 in its rst quarter
was US $ 3 5 0 000, then subtracting 3 2 , 900 rom 3 5 0, 000 gives a more
accurate sales prediction gure o 3 1 7, 1 00 or the rst quarter o year 7.

The benefts o sales orecasting


 B etter cash fow management  by taking into consideration cyclical
and seasonal variation actors, nancial managers can better plan to
improve the liquidity position o a business.
 Increased eciency  sales orecasting greatly assists the production
department in knowing the number o goods to produce and in
planning or the amount o stock required in the uture.
 B etter workorce planning  accurate sales orecasting can help the
human resources department in succession planning regarding the
number o sta required in the uture.
 Improved marketing planning  marketers will gain greater
awareness o uture trends and be able to adj ust their marketing
strategies accordingly in an eort to increase their market share.

TOK discussion
The limitations o sales orecasting
 S ales orecasting is time- consuming  it takes a long time to calculate To what extent does knowing
because o its complex nature, especially when considering the assist us in predicting?
calculation o average seasonal variations in each quarter over a How do we know that our
predictions are reliable?
4 Marketing

number o years.
 S ales orecasting ignores qualitative external actors. A number
o political, social, and economic actors can infuence the accuracy
o sales orecast predictions, or example political instability,
changes in consumer tastes and preerences, and exchange rate
fuctuations.

Student workpoint 4.7


Be knowledgeable
Table 4.3 .5 shows the yearly sales gures o a paper manuacturer over a period o eight years.

Table 4.3.5. Paper manuacturers sales 200411


Year 2004 2005 2006 2007 2008 2009 2010 2011
Sales revenue (US$000) 200 350 400 600 500 750 900 1,000
a) C alculate the three-year and our- year moving averages.
b) Plot both trend lines and the actual sales revenue on graph paper.
c) C omment on the relationships between the actual sales revenue and the trends noted.
d) E xtrapolate the our- year moving trend line and predict the likely sales revenue or 2 01 2 .
e) C alculate the average cyclical variation over the period.

278
4 . 3 S A L E S F O R E C A S T I N G ( H L O N LY )

revision checklist
 Sales orecasting is a quantitative process o estimating a rms uture
sales levels and trends over a specied period o time.
 Seasonal variations are caused by changes in demand due the
varying seasons in the year. C yclical variations on the other hand are
tied to the business cycle in an economy while random variations are
notable changes that stand out rom a given trend.
 Moving averages greatly assist in developing trend lines that help to
smooth out any fuctuations rom sales data.
 C entring is a more complex method o calculating moving averages
that involves the use o a our- year and an eight-year moving total to
establish a mid- point when calculating our year moving averages.
 Extrapolation is the use o a line o best t drawn to predict
uture sales.

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279
4 M AR KE T I N G

Practice question
Fun-Games
Fun-Games is a well known national private limited company, which
prides itsel on its innovative computer games and dedicated workorce.
A recession is predicted or the coming three years in the domestic
economy, so the managers o Fun-Games are considering expansion
into overseas markets. The preerred option is expansion into nearby
countries that are also members o a Free Trade Area*, although research
showed that the exchange rate had fuctuated signicantly in the last
ew years.
While accepting the need or a growth strategy, the marketing director
is worried about Fun-Games lack o experience o operating in overseas
markets; cultural, linguistic and social diculties may be encountered.
The nancial director is worried about lack o unds or expansion. The
managers o Fun-Games are considering the best option or external
expansion and intend to use sales trend data rom the previous seven
years, to help make a decision.
Fun-Games computer games sales record: 2 002 007

Financial year Sales


2001 5000 units
2002 5500 units
2003 4500 units
4 Marketing

2004 8600 units


2005 9100 units
2006 9300 units
2007 11 000 units

a) D ene the term private limited company [2 marks]


b) Using three years moving average:
( i) C alculate the sales trend, the yearly variation and the
cyclical variation. (Show all your working) [5 marks]
( ii) C onstruct a graph using the sales trend gures rom ( i)
and use it to orecast the sales trend gure or 2 009.
(Show all your working) [3 marks]
c) D iscuss the benets and limitations to Fun-Games o using sales
orecasting in aiding their decision to expand overseas [1 0 marks]
IB , Nov 2 008

* Free Trade Area: a group of countries that have eliminated tarrif restrictions in order to trade together
more easily.

280
4.4 Market research
By the end of this chapter, you should be able to:
 explain why and how organizations carry out market research
 analyse the primary market research methods
 comment on the secondary market research methods
 discuss the ethical considerations of market research
 distinguish between qualitative and quantitative research
 explain the various sampling methods
 interpret results from given data.

Market research is the process o collecting, analysing, and reporting


data related to a particular market, including data on consumption
o goods and services and on competitors behaviour. Importantly,
businesses use market research inormation to make decisions.

the purposes of marke research

4 Marketing
 To identiy consumer needs and wants as well as aim to understand
consumers satisaction levels and patterns in purchase behaviour.
For example, a beverage company may want to fnd out the type
o customers buying their sodas and the sales trends over a given
period.
 To assist a business in predicting what is likely to happen in uture.
For example, an upcoming recession may signal frms to be prepared
or decreases in overall spending patterns because o a possible
decline in consumer income levels.
 To reduce the risk o product ailure ( especially o new products) by
eectively carrying out market research that establishes the likes and
dislikes o consumers.
 To measure the eectiveness o a marketing strategy. This can be
done by assessing or evaluating how a frm implements the activities
required by its marketing mix in specifc market segments.
 To provide current or the latest inormation regarding activity in the
market. For example, most large technological companies have huge
research and development budgets so that they keep up to date in
oering frst- mover advantages.

Marke research mehods


Market research can broadly be carried out in two ways: primary and
secondary research.

281
4 M AR KE T I N G

Primary market research


This is also known as eld research and involves the collection o rst-
hand inormation rom the market. Most organizations will conduct
this research to nd out specic buying patterns o consumers and
attempt to anticipate any changes in their spending behaviour over
a given period o time. Firms may decide to carry out this research
themselves or seek the help o a market research agency. A key
advantage o primary research is that the organization that collects the
data will be the rst to access it, which gives it an advantage over its
rivals. For example, a hotel may discover through primary research
that a particular airline is prone to fight cancellations. It can use this
inormation to attract customers who may be waiting or many hours
and possibly days or their connecting fights. However, eld research
is expensive because the research process takes time and requires
specialized researchers.

Secondary market research


This is the collection o second- hand inormation rom the market.
Also known as desk research, it involves analysing data that already
exists in some orm. O rganizations should rst carry out secondary
research to get an overall background picture and then conduct
primary research as a gap- lling measure. D esk research is a quicker
and cheaper method than eld research and most o the inormation
involved is readily available. However, the inormation collected may
4 Marketing

be out o date and have been collected or purposes other than the
specic needs o the researching organization. In some cases the source
o data may not be reliable.

Primary market research methods


and techniques
Surveys
These are questionnaires sent out to a particular target audience to
enable the researcher to gather useul inormation. The questionnaire
may contain dierent types o question, or example those needing yes
or no answers, multiple choice, or open-ended questions. A consumer Key terms
survey may ocus on getting specic inormation rom consumers by
seeking their opinion on a particular product or issue. Surveys can be Market research
implemented in a number o dierent ways. the process o collecting,
analysing, and reporting data
S ome o the most common ways to administer surveys include:
related to a particular market
 by mail  an example would be an alumni survey distributed
via direct mail by the development oce in a school seeking the Primary research
opinions rom past students about an issue the collection o frst-hand
inormation rom the market
 by telephone  an example would be a researcher calling consumers
to elicit their opinion on using a certain product or service Secondary research
the collection o second-hand
 online  or example, workshop leaders may use online surveys as an
inormation rom the market
evaluation tool to seek participants opinions o the workshop.

282
4 . 4 M AR KE T R E S E AR CH

Advantages D isadvantages
 They enable researchers to collect a large  Surveys that are poorly constructed and
amount o data in a relatively short period o administered can undermine otherwise well-
time. intended research.
 I designed well, surveys can be administered  The answers provided by respondents on a
and completed easily by the respondents. survey may not be an accurate refection o
how they truly eel, with some results also
 Surveys can be used to collect inormation on
being biased.
a wide range o aspects including attitudes,
preerences, and opinions.  As large samples are usually used, surveys can
prove to be costly and use up a lot o time in their
construction and administration. While random
sampling is generally used to select participants,
response rates can bias the results o a survey.

Interviews
An interview is a conversation during which the interviewer asks the
interviewee questions in order to gain inormation. Interviews can be TOK discussion
conducted one on one, ace to ace or by telephone. How does the language used
in questionnaires infuence
Advantages D isadvantages consumers and businesses
 They can provide detailed  The whole process can conclusions when doing

4 Marketing
inormation about the be very time- consuming market research?
perceptions and opinions o as it involves setting up
consumers through in-depth the interview, carrying it
questioning. out, analysing responses,
gathering eedback, and
 They usually achieve a high
reporting.
response rate because o the
one- on- one attention provided.  S ome interviewers may
Precise wording can be tailored be biased, thereore
to the respondent and the infuencing interviewees
precise meaning o questions responses.
claried during the interview
process.

Focus groups
Focus groups consist o a small number o people brought together
to discuss a specic product or idea. The group comprises individuals
who are representative o the customers o the business or o a specic
segment o customers. In the discussion, participants respond to
questions prepared by market researchers. Participants reely share
their opinions, ideas, and reactions. They may also be asked to try a
new product. Usually, all their responses are viewed and studied to help
researchers predict the reaction o the larger market population.

283
4 M AR KE T I N G

Advantages D isadvantages
 As ocus groups consist o a small group o  The business may seek inormation about the
individuals, using them is a cheap and easy entire market or segment and it could be that the
way o gathering market research. opinions o a small number o individuals do not
refect it.
 They can be used to measure the reaction o
customers to a rms new product or to the  There is the possibility that some members o
rms strategies. the group may not express their honest and
personal opinions on the discussion topic.
 They help identiy key product requirements
They may be hesitant to express their own
as well as other needs not addressed by the
views, especially when their opinions oppose
business and its competitors.
those o another participant.
 They provide insights on the current position
 Focus groups are more costly to carry out than
o the rms competitors in the mind o the
surveys as each participant usually has to be
customer.
compensated in cash or in kind.

Observation
O bservation is a undamental and basic method o getting inormation
by careully watching and trying to understand certain things or peoples
behaviour. S ome observations are scientic in nature; however, not all
ollow this trend. O bservation can be used by supermarkets to check
how quickly consumers notice their displays or how long they may
spend queuing as they wait to pay. It can also be used by a governments
4 Marketing

trac department to observe the fow o trac in certain areas and help
provide recommendations or improvement.

Advantages D isadvantages
 It is a direct method o collecting data or  C omplete answers to any problem or issue
inormation when studying actual human cannot be obtained by observation alone,
behaviour, as the researcher can see exactly so market researchers need to combine
how people behave in a given situation. this with other methods such as issuing
questionanaires.
 A large number o individuals can be surveyed
in a short space o time.  Observation cannot be used to study attitudes
or opinions o individuals because this usually
 O bservation is usually a cost- eective way o
requires a verbal response rom the participant.
gathering data.

Secondary market research methods


or techniques
Academic journals
These are publications o scholarly articles written by experts. The
articles should be well reerenced to provide the exact source o the
inormation given. The experts will usually include proessors,  graduate
students, or others with rst- hand experience in a particular subj ect.
Academic j ournals are written or the sole purpose o providing and
distributing knowledge and not as a money- making opportunity.

284
4 . 4 M AR KE T R E S E AR CH

Advantages D isadvantages
 Academic journals undergo a peer-review process  Since they contain inormation o very
where they are checked by academics and other specifc academic interest, they may not be
experts. This increases the reliability o the the best source or general-interest topics.
inormation.
 The peer- review process can be time-
 Most academic j ournals include reports, reviews o consuming, which may also aect the
current research, and topic- specifc inormation. provision o the latest or current event
They are thereore good sources when a frm is in inormation.
need o original research on a topic.
 They take less time to publish than books.

Media articles
These include newspapers and magazines.
A newspaper is a printed publication containing news, eature articles,
advertisements, and correspondence. O nce viewed as the dominant
means o communicating world events, newspapers have declined in
readership since the rise o television and the Internet.

Advantages D isadvantages
 C ommunicating via a newspaper is  It is difcult to communicate events in real-time.
cheaper than communicating via As the process o producing content, printing, and

4 Marketing
television. distributing the fnished paper is time- consuming,
articles that were written may be out o date by
 Most serious newspaper articles have been
the time they are delivered to the customer.
well researched, written with reliable
sources, and edited or accuracy, which is  Newspapers can be biased, depending on the type
not the case or some Internet resources. o organization that owns them.
 They are widely available and can be  The process o producing newspapers could be
ound in many retail stores. considered a waste o paper and energy resources.

Government publications
These are articles produced by the government on a wide variety o
topics. They could provide businesses with useul inormation on the
population census in a country, statistics on social trends, or even
surveys on consumer expenditure patterns.

Market analyses
These include commercial publications or market intelligence reports
that gather data about particular markets. The highly detailed
reports are usually carried out by specialist market research agents.
They can be sourced at various local business libraries, but they are
quite costly. O rganizations that provide such reports include D un,
Mintel and Verdict.

285
4 M AR KE T I N G

ETHICS
Marketing research has experienced a resurgence with the Breaches o confdentiality
widespread use o the Internet and the popularity o social Another signicant ethical consideration involved in market
networking. It is easier than ever beore or companies to connect research involves breaches o condentiality. Companies
directly with customers and collect individual inormation. regularly share inormation about customers with partners
The way a company conducts its market research these days and afliates, requiring the customer to opt-out o the sharing
can have serious ethical repercussions, impacting the lives o i he [or she] doesnt want to be involved. Some companies
consumers in ways that have yet to be ully understood. Further, sell inormation they have gathered on customers to outside
companies can be aced with a public backlash i its market companies. Ethically, any unauthorized disclosure o customer
research practices are perceived as unethical. inormation is problematic.
Deceptive practices Objectivity
The ease with which a company can access and gather data Marketing and advertising have a signicant impact on public
about its customers can lead to deceptive practices and perceptions. Market researchers have an ethical obligation to
dishonesty in the companys research methods. The type o conduct research objectively, so data is available that allows or
ethical problems could range rom not telling customers that the development o the varying issues noted. Researchers who
inormation is being collected when they visit a website to allow their own opinions to bias their work tend to contribute to
misrepresenting research numbers by changing database the continuation o stereotypes in advertising. For example, a
numbers. Any action that uses lies and deception to nd out or market researcher with a one-dimensional view o minorities
establish inormation about consumers alls under this category. could do a air amount o harm i allowed to shape an advertising
Invasion o privacy campaign based on biased data collection.
One o the most serious ethical considerations involved in Source: http://smallbusiness.chron.com/ethical-considerations-
market research is invasion o privacy. Companies have an marketing-research-43621.html
unprecedented ability to collect, store and match inormation
Exam-style questions
relating to customers that can inringe on a customers right
1. Describe two orms o marketing research. [4 marks]
4 Marketing

to privacy. In many instances, the customer does not know


or understand the extent o the companys inltration into his 2. Discuss how and why ethics and globalisation
[or her] lie. The company uses this inormation to reach the impact upon marketing research. [10 marks]
customer with targeted advertising, but the process o targeting
can have a chilling eect on personal reedom.

the diferences beween qualiaive and


quaniaive research
Primary research or secondary research can be either qualitative or
quantitative in nature.
Table 4.4.1 shows the differences between qualitative and quantitative
research.
Table 4.4.1. Dierences between qualitative and quantitative research
Qualitative research Quantitative research
This involves the collection o data about opinions, This involves the collection o numerical data or data that
attitudes or belies. can be measured.
Inormation is open to a high degree o interpretation. Inormation is open to less interpretation.
It is subjective. It is objective.
Key research questions would include Why? Key research questions would include How many?
The researcher is part o the process. The researcher is separate.
It provides multiple realities, i.e. the ocus is complex It provides one reality, i.e. the ocus is concise
and broad. and narrow.

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4 . 4 M AR KE T R E S E AR CH

Generally, qualitative research is collecting, analysing, and interpreting


data by observing what people do and say. Whereas quantitative
research reers to counts and measures o things, qualitative research
reers to the meanings, defnitions, characteristics, and descriptions o
things. C ommon methods used in collecting qualitative data include the
use o ocus groups and in- depth interviews. S urveys and government
publications are methods usually used to collect quantitative data.
Quantitative research may seek answers to the question: How many
customers bought the companys sports shoes in the month o May
2 01 3 ? Qualitative research may seek answers to the question: Why do
customers like the companys sports shoes?

Sampling methods
In reality there is simply not enough time, energy, money, labour,
or equipment to carry out a survey o the whole population. The
population comprises all potential consumers in a market. However, in
an eort to gather adequate primary research and still have a clear idea
o consumers views, taking a samp le o the population is required. A
sample is a small group o people selected to represent the population
or target market under research. For example, a small group o
consumers could be selected out o a large number o potential
buyers o a product. S amp ling is simply the process o selecting the
appropriate sample.
B elow are a number o commonly used sampling methods and the

4 Marketing
advantages and disadvantages o each.

Quota sampling
This involves segmenting a given population into a number o groups
that share certain characteristics ( mutually exclusive sub- groups)
such as age or gender. Targets are then set or the number o people
who must be interviewed in each segment. For example, in a school
o 5 0 0 students oering the IB diploma programme, a researcher
may target 1 5 males and 2 0 emales to interview regarding their
perception o the programme.

Advantages D isadvantages
 This is a quick and cost-  Results obtained are
eective sampling method, not always statistically
especially where the representative o the
proportions o the dierent population as random
groups in the population are sampling ( see below) is
known. not done; this also leads to
statistical errors.
 Findings obtained are usually
more reliable than those o  The interviewer may be
random sampling. biased in the selection o
interviewees and choose
those who will cooperate
most in the process.

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4 M AR KE T I N G

Random sampling
In this case every member in the population has an equal chance of
CHANGE
being selected as part of the sample. The sample of respondents is Technological innovation has
transormed the way market
selected randomly. With technology, a list of random numbers can
research is done.
be generated from a target population by the use of a computer. An
example of selecting a random sample may be choosing any 5 0 people Social media has expanded the
from a telephone directory containing the names of 1 , 000 peo landscape is transorming it in
exciting new ways. Social media
allows unfltered eedback abut
Advantages D isadvantages requires new researching skills.
 Random sampling reduces  The sample chosen may With new technology, researchers
bias as everyone has an equal be too small and/or it may can be much more targeted in
chance of being chosen. not consist of the target what they measure and who they
population: a larger, more target. Using the most recent
 It is a relatively easy way of social media and online survey
representative sample may
obtaining a sample. products, businesses are able
have to be selected.
to collect data about all sorts o
things. They can do it aster, better
Stratifed sampling and cheaper than ever.

In this method the target population is made up of many different What do you think are some of
groups who are subdivided into segments or strata that share similar the major drawbacks inherent
in conducting market research
characteristics. Members are then chosen from each stratum to form
using the recent changes
a representative sample. For example, a secondary school may be
in technology? How do you
deciding to introduce a new school uniform. It may divide the school think these drawbacks can be
population based on the different forms, from Form 1 to Form 5 . A addressed?
4 Marketing

random sample is then chosen from each of these forms, ensuring that
the same proportions of the sample in each category is maintained. As in
the above example, for a sample size of 5 0 people whose names appear
in a telephone directory, 1 0 students from each form ( 1 0  5 ) would be
randomly selected to make up the required sample.

Advantages D isadvantages
The sample selected is more It is not easy to select relevant
representative of a particular strata from a population of very
target population. similar characteristics.

Cluster sampling
This is an appropriate method to use when the population is geographically
dispersed. This will involve selecting a group from each region (cluster) and
then taking a random sample from the clusters. For example, a multinational
wishing to set up a plant in a certain town may carry out research on just a
few geographical areas around the location and the opinions of the clusters
selected will be assumed to represent the whole population.

Advantage D isadvantage
 It is a quick and cheap  Results obtained may not be
method of carrying out representative of the whole
research from widely population and may be biased,
geographically dispersed especially if the cluster sample is
populations. obtained from areas where people
share similar characteristics.

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4 . 4 M AR KE T R E S E AR CH

Snowballing
This is a process o sampling that involves surveying the frst group or
individual who then suggests other groups or individuals who could
participate, and so on. Members o the initial group use their contacts to
reer to other people that they know, hence the snowball eect. It may
be used when conducting quite sensitive research, or example a survey
done on the use o ARVs among HIV- positive individuals. It is also used
when researching expensive sophisticated products where the range o
potential customers is limited.

Advantage D isadvantage
 It is a cost- eective method o  There is potential or getting
obtaining inormation through a biased sample, since riends
reerrals. sharing similar liestyles may
reer each other and be part Exam tip
o the same sample.
In determining the best
sampling method to use, it
Convenience sampling is important to analyse the
This is a sampling technique where groups are selected based on their strengths and weaknesses
easy access and proximity to the researcher. For example, a teacher o each method. A key
doing research on the school canteen could conduct a study by being consideration is the level o
physically present and directly interviewing students purchasing items bias in the sample and how
rom the canteen at break time or lunchtime. Another example would cost-eective the method is.

4 Marketing
be when conducting research in a hospital, when the researcher may use This could also be infuenced
the frst ten names in the patient list to select a sample. by actors such as nancial
resources, business size, and
Advantage D isadvantage rationale o the research.
 It is a ast, easy and cheap  The sample may be biased
method o sampling because and not be representative o
the research groups are readily the entire population. Key terms
available.
Quantitative research
the collection, analysis and
results fom data collection interpretation o numerical data
B usinesses are interested in the range o results they get rom carrying out or data that can be measured
research. It is thereore o prime importance that they ensure that their
data collection methods are appropriate and oer a high degree o accuracy. Qualitative research
Whether using either quantitative or qualitative data, or a combination o the collection, analysis, and
both, it is essential to maintain integrity in the research process. Selecting interpretation o data about
the appropriate data collection instruments and providing clear instructions consumer opinions, attitudes,
or their correct use reduces the likelihood o sampling errors occurring. or belies
B enefts o properly collected data include: Sample
 the ability o research to answer accurately the research questions posed a group o people selected to
represent the population or
 the ability to repeat and validate a particular study where needed target market under research
 increased accuracy o fndings resulting in efcient use o resources Sampling
 good opportunities or other researchers to pursue areas needing the process o selecting an
urther investigation. appropriate sample

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4 M AR KE T I N G

The heart o research is gathering reliable inormation about an issue or


intervention and analysing it to determine the signifcance o the sample TOK discussion
results. C ollecting and analysing quantitative data can help highlight To what extent is market
connections ( correlations) among variables and also address other research inormation reliable?
actors the researcher may not have considered.  C ollecting and analysing
qualitative data can provide insight into the varying participant
experiences, including what may need to be improved or changed. O n
gaining the required knowledge rom the research inormation provided,
a researcher should continue evaluating the whole process in an eort to
obtain even better results in the next research round.

Mrketing reserch  a cse study of Sfricom


Case study

Saaricom is the leading telecommunications company Saaricom subscribers can participate. The second
operating in Kenya. It provides a host o products and solution Saaricom can have a charity event were the
services or telephony, GPRS, 3G, EDGE and data and ax. money they make goes to a special cause or example
It has been aced with a number o problems with ood aid, tree planting etc this would aect the market
time, one o which is the entry o many other socially. And the nal solution would be Supremacy to
telecommunication companies into the market over control the telephony industry by outmatching other
the years. The companies include, Telkom Orange, operators to be the rst to launch Apples iPhone 3G. To
Yu and Zain. So ar the main rival is Zain. The problem do all this they have to carry out extensive research to
caused by the entry o other companies is that they help in a decision.
bring about unwanted competition (decrease in market Saaricom decided to be the rst to launch the Apples
share) . This problem can be solved by conducting iPhone 3G increasing the competitor advantage. The
4 Marketing

marketing research. third step would be to market research to enable


The rst step in the marketing research process is the rm to make an appropriate decision on all the
identiying and dening your problem. Dening the elements o the marketing mix as well as reduce the
problem would mean expanding on it and explaining risk o investing in an unprotable marketing venture.
why it should be seen as a problem. In this case Since Saaricom is a long established rm and has
Saaricom has identied a number o competitors as a network running across Kenya they decided to
the threat o losing customers and reducing the market launch the product in a limited geographical area
share, which will lead to lower prot margins and growth where demand is observed. The price was high as it
at the end o the year is contrary to what they want. was a unique product to capture non price sensitive
consumers who see new products as a novelty and as
Step two is to develop your approach, generally the product would grow older the price is reduced to
speaking the approach should be developed almost capture the more price sensitive consumer. It will be
exclusively around a dened set o objectives. Clearer launched in Westlands N airobi next to two shopping
objectives developed in step one will lend them to malls and excessive advertisements will be done to
a better approach development. Developing your ensure consumers receive inormation about the new
approach should consist o an honest assessment and exciting product.
o your teams market research skills, establishing
a budget, understanding your environment and its Step our is called data collection or survey elding.
inuencing actors and ormulating hypotheses. Generally data analysis is concerned with editing,
coding and presenting collected raw materials into
Saaricom has to nd an approach to counter the a orm suitable or solving the research problem and
problem they are acing, which is competition. A making decisions. The data collected rom the test
chosen team at Saaricom came up with a number o marketing research would include diagrams, sales,
possible solutions and chose one that was eective. etc this would enable us to evaluate it and make the
The rst solution would be to introduce lower call rates decision on whether to launch the product ofcially in
or subscribers and introduce a competition which only the whole o Kenya.

290
4 . 4 M AR KE T R E S E AR CH

Step ve is the analysis o the collected inormation. threats o launching the product. In this case Saaricom
Data presentations methods chosen should allow launched the iphone 3G as their research in this
or easy interpretation o the research ndings by area was positive, however this was a test on a small
the analyst. Use o charts and diagrams make this group that may not efectively represent the whole
possible as they can plot the data to show trends market behaviors.
and relationships between variables. Test marketing Adapted rom http://www.123helpme.com/marketing-
provides rst hand inormation about the market and research--view.asp?id=166275
also revenues are collected during collection o data.
For example the analyst can use a graph that shows
the trend o the sales to help in making decisions. Exam-style questions
Step six involves the market research report. The 1. Outline two challenges that companies such
report must provide the readers (sponsor) with the as Saaricom may ace when carrying out
inormation they require in a ormat they are able to market research. [4 marks]
understand and appreciate. Vocabulary, presentations, 2. Evaluate Saaricoms strategies to overcome
analysis methods used should match the readers competition. [8 marks]
levels and demands. Also the report should contain

Student workpoint 4.8


Be an inquirer
C arry out an investigation on any organization o your choice that
carries out market research. In the process, consider the ollowing:

4 Marketing
1 . What are the primary and secondary research methods it uses?
2 . D oes it use qualitative or quantitative research, or both?
3 . C omment on the sampling method or methods it uses.

revision checklist
 Market research aids in business decision making by collecting,
analysing and reporting data related to a particular market.
 Primary research (feld research) and secondary research (desk research)
are the two ways in which market research can be carried out.
 Primary research methods include surveys, interviews, ocus groups
and observations.
 Secondary research methods include academic j ournals, media
articles, government publications and market analyses.
 Quantitative research concerns the collection, analysis and interpretation
o numerical data as compared to qualitative research that collects,
analyses and interprets data about consumer opinions, attitudes or belies.
 In conducting market research it is important that the data collection
methods businesses use are appropriate and oer a high degree o
accuracy while maintaining integrity in the research process.

291
4 M AR KE T I N G

Practice question
Global B rand Values
In 1 984, Proessor Leavitt argued that technology had created a world in
which consumer tastes were converging and that successul businesses
should market globally standardized products. It is no accident that the
companies with the biggest increase in brand value in 2 005 operate as
single brands everywhere in the world to create a consistent impact. The
global bank HSBC, or example, increased brand value by 2 0% by using
the same advertising message worldwide.
The traditional approach o building brands through the mass media
is over. TV networks have split into hundreds o cable channels, and
specialist magazines aimed at smaller groups have replaced mass- market
publications. Today, brands increasingly use traditional advertising as j ust
one tool in an overall marketing plan. New generation brands, including
Amazon and e-Bay, have gained huge global value with little traditional
advertising. Even older brands, such as Coca-Cola, and McDonalds, are
decreasing traditional spending. McDonalds cut TV advertising rom 80%
to 5 0% o its marketing budget in 2 004.
Promotion has shited to online advertising and into video games and
flms, oten aimed at children. The Korean electronics manuacturer,
Samsung, the biggest gainer in brand value in 2 005 , promoted its brand
through entertainment and sponsored the movie, The Fantastic Four,
in which a variety o Samsung gadgets played a part.
4 Marketing

[Source: adapted from Global Brands Business Week, July 2005 and Should Global
Brands Trash Local Favourites? brandchannel.com]
a) E xamine the advantages and disadvantages o frms like the
bank HSBC operating as a single brand around the world. [6marks]
b) E valuate possible primary and secondary market research
that companies, like Coca-Cola and McDonalds, can conduct
to ensure new promotional approaches are eective in
targeting existing and potential customers. [8 marks]
c) Using examples, explain the impact o new technologies
and advertising media on the marketing obj ectives and
promotional strategies o large corporations. [6 marks]
IB , May 2 007

292
4.5 The four Ps (product, price, promotion, place)
By the end o this chapter, you should be able to:
 draw a product lie cycle and identiy its various stages
 analyse the relationship between the product life cycle and the
marketing mix
 examine and recommend various extension strategies that could be
used by rms
 comment on the relationship between the product lie cycle,
investment, prot and cash fow
 evaluate an organizations products using the Boston Consulting
Group (BCG) Matrix.
 explain aspects o branding
 discuss the importance o branding
 examine the importance o packaging
 justiy the appropriateness o using particular pricing strategies
 evaluate the impact o new technology on promotional strategies

4 Marketing
 discuss guerrilla marketing and its eectiveness as an innovative
promotional method
 comment on the importance o place in the marketing mix
 examine the eectiveness o dierent types o distribution channel.

A p roduct is any good ( tangible item) or service ( intangible offering)


that is offered to the market with the aim of satisfying consumer needs
or wants.

the produc life cycle


A p roduct life cycle shows the course that a product takes from its
development to its decline in the market. Most products go through six
stages in their life cycle: development, introduction, growth, maturity,
saturation, and decline.

Stage 1: Development
In this stage the product is designed, following this series of steps:
1 . Generating ideas  this is a brainstorming session where a number
of stakeholders are consulted to come up with anything that may
help satisfy consumer needs and wants. These stakeholders may
include employees, department managers, and customers, among
others. C onducting market research also helps in identifying any
potential gaps that may exist in the market.

293
4 M AR KE T I N G

2 . S creening ideas  this involves deciding which ideas to leave out


( poor ideas) and which ones to research urther ( good ideas) . S ome
product ideas may not be practical or sell well while others may be
too expensive to produce.
3 . C reating a p rototyp e  a prototype is a rst or trial orm o a
product rom which others are developed. It allows or visualization
or physical examination o the product, especially by the production
department. A select group o customers could also be provided with
the prototype so that they could give eedback that would help i any
alterations are necessary.
4. C arrying out test marketing  ater making the necessary
changes to the product, samples o the developed product are
launched in a small but representative part o the market to assess
the potential demand or sales o the product. At this stage, i the
product does not sell well, it can be changed or removed without
costing the rm too much.
5 . C ommercialization  ater a successul test marketing, a ull launch
o the product to the market takes place. This will involve the use o
all the elements o the marketing mix.
At this stage the research and development costs are very high as a lot
o time, money, and eort is invested in developing the product. There
are no sales yet and thereore no prot is experienced. C ash fow is also
negative.
4 Marketing

Stage 2: Introduction
This is the launch stage o the product on to the market. S ales are low
because most consumers are not yet aware o the products existence.
C osts incurred in the launch are high and it is thereore highly likely
that the product is not protable. Moreover, the cash fow is negative
as the cash outfow is still greater than the cash infow. High prices or
p rice skimming may be used or brand-new technological products, or
example personal computers or cellphones, especially where there are
ew or no competitors. Where there are many competitors, penetration
pricing might be the strategy, or low prices could be charged long term.
In an eort to increase awareness o the product, inormative advertising
is used. Expensive products could be sold in restricted retail outlets
targeting high- income consumers. Key terms
Price skimming
Stage 3: Growth
setting a high price when
O nce the product is well received by the market, the sales volumes
introducing a new product to
and so revenues start to increase signicantly. This translates to rising
the market
prots, especially with the possibility o economies o scale or lowering
o unit costs. C ash fow now becomes positive. Ater a successul launch, Penetration pricing
prices that were initially low (through penetration pricing) can now setting a low initial price for
be increased to maximize prots. O n the other hand, products that a product with the aim of
started at high prices ( through price skimming) can have their prices attracting a large number
reduced slightly because o increased competition attracted by the prots. of customers quickly and
Advertising becomes persuasive so as to convince consumers to buy more gaining a high market share
products and establish brand loyalty. A larger number o distribution

294
4 . 5 T H E F O U R P S ( P R O D U C T, P R I C E , P R O M O T I O N , P L A C E )

outlets are used to push the product to dierent consumers in various


locations. To maintain consumer demand, discussions begin on issues
regarding product improvements and developments.

Stage 4: Maturity
At this stage sales continue to rise but they do so slowly. The product is
well established, with a stable and signicant market share resulting in a
positive cash fow. Sales revenue is at its peak and prot is high, but with
little growth as competitors have entered the market to take advantage
o these prots. C ompetitive or promotional pricing strategies are
preerred to keep competitors at bay. Promotion assumes a reminding
role so as to maintain sales growth and emphasize brand loyalty. A very
wide range o distribution outlets or the product has been established.
Plans on new product developments are at an advanced stage, with some
rms introducing extension strategies to extend the lie o their products.
( This is discussed urther below.)

Stage 5: Saturation
Here, many competitors have entered the market and saturated it.
S ales are at their highest point and begin to all. However, cash fow is
still positive. S ome businesses are orced out o the market as a result
o the sti competition. Prices will have to be reduced, so competitive
pricing is used. Many rms use extension strategies to stabilize their
market share and also use high levels o promotional activities such as

4 Marketing
aggressive advertising in an eort to maintain sales. The widest range o
geographical distribution outlets has been established to get the products
to consumers. Prots are high and mostly stable.

Stage 6: Decline
This stage signies the steady drop in sales and, through this, the prots
o a product. In addition, cash fow begins to all but is still positive. The
product may have lost its appeal in the eyes o consumers because new
models o a product have been introduced to replace the old model. I
sales become too low, the product is slowly withdrawn rom the market.
Promotional activities are reduced and kept at a minimum. Prices are
lowered in most cases to sell o any existing stock. D istribution outlets
that are not protable are closed.
Sales

introduction growth maturity saturation decline


Time
Figure 4.5.1. The product life cycle.

295
4 M AR KE T I N G

extnsion stratgis
E xtension strategies are an attempt by irms to stop sale s rom alling
by lengthe ning or extending the products lie cycle. This is done
at the maturity or saturation stage s o a products lie cycle.
Here are some common methods businesses use to extend their
p roducts lie cycles:
 They sell existing products into new markets. They might sell
products in other regions within a country and/or export them.
 They nd new uses or the product. For example, the cellphone
was rst introduced as a basic communication device but now the
smartphone has a much wider variety o uses, including oering
banking and other online services.
 They change the products packaging. This could include
changing the design, appe arance, and colour o the package to
stimulate consumers inte rest and persuade them to b uy the
pro duct. For e xample , the washing detergent O MO  has b ee n
re p ackaged many time s, which has helped sustain demand or it
or a long time.
 They target dierent market segments. O ne example is banks having
dierent accounts that customers may open based on their income
levels. S ome banks have also accommodated customers with various
religious belies and have special accounts or them  or example
4 Marketing

in Kenya, B arclays bank opened a S heria account to appeal to


customers o the Muslim aith.
 They develop new promotional strategies. For example, rms
could create new advertising campaigns to encourage consumers
to continue using their products, there by helping to revive
demand or their product.

Essentially, extension strategies are important to the long- term success


o a business as the market becomes saturated and sales begin to drop.
As a result, it would be better to extend the lie o a mature product
beore this decline in sales starts. However, it is not always easy to
determine where exactly in its lie cycle a product is. S ome businesses
use sales orecasting to assist in this. However, since orecasting is based
on predicting trends, the results obtained may not always
be entirely accurate. Moreover, unexpected external
actors may have a strong infuence on any uture sales.
For example, a recession may have negative eects on
Sales

the demand or a rms existing products as well as


new products that it may have introduced as part o its
extension strategy. In this situation it would thereore be
critical or the rm to know where its products lie in the
lie cycle or more ecient management o its resources.
S pending money on a terminally declining product is a Time
mere waste o resources  one example would be spending Figure 4.5.2. Extension strategies in a product
money on marketing videotape recorders today. life cycle

296
4 . 5 T H E F O U R P S ( P R O D U C T, P R I C E , P R O M O T I O N , P L A C E )

Table 4.5.1. Summary o the relationship between the product lie cycle and
marketing mix strategies

Strategies Introduction Growth Maturity Saturation Decline


Product The basic product Product New product Extension Weak products are
is marketed. improvements development is strategies are withdrawn rom
or new product at an advanced critical to maintain the market.
development stage. Extension sales.
plans start. strategies are
introduced in
some cases.
Price Cost-plus, Penetration prices Competitive or Competitive Price cuts are
skimming or slightly increase. promotional pricing is used. made.
penetration pricing is used.
pricing is used.
Promotion Inormative Persuasive There is extensive Aggressive Advertising is
advertising is advertising is advertising to advertising is reduced to a
used. used. remind customers carried out to minimum.
o the product. emphasize the
brands benets
and dierences.
Place Selective or Intensive There is more The widest range There is selective
restricted distribution or intensive o geographical distribution and
distribution takes more distribution distribution or distribution unprotable

4 Marketing
place. outlets are used. a wide range outlets is used. outlets are
o distribution eliminated.
outlets.

Table 4.5.2. Summary o the relationship between the product lie cycle, investment,
prot, and cash fow
Product life
Development Introduction Growth Maturity Saturation Decline
cycle stage
Investment High research High costs on Average Lower costs Cost ocus is Very low
level and development promotion to high on promotion on extension costs on
costs costs on strategies promotion
promotion
Prot None None or Some prot High prot; High and Decreasing
negative and rising reaches its mostly stable prot
peak prot
Cash fow Negative Negative but Positive Positive Positive Positive but
improves with decreasing
sales cash fow

the Boson Consulin group (BCg) Marix


Product portolio analysis is a process that evaluates the products making
up a business. A business will want to invest more resources into its
proftable products and phase out the weaker ones. A very common
product portolio analysis method was developed by the management

297
4 M AR KE T I N G

consulting rm B oston C onsulting Group, known as the B oston


Matrix or the B oston C onsulting Group (B C G) Matrix. The B C G
Matrix is a growthshare matrix that measures the market growth rate
on the vertical axis and relative market share on the horizontal axis.
Market growth rate shows how attractive a product is in the market,
while relative market share looks at how much o the market a product
has captured  its strength in the market. This growthshare matrix is
classied into the ollowing our categories:

 S tars. These are products with high market growth and high market
share. They are successul products in the market and generate
high amounts o income or the business. However, they need high
levels o investment to sustain their rapid growth and status in the
market, especially in a ast- growing market where competing rms
can easily gain market share by attracting new customers. With time,
as these products mature and their market growth slows down, they
eventually turn into cash cows.

 C ash cows. These are products that have low market growth
and high market share. They comprise well- established products
in a mature market and, as a result, businesses will invest less
to hold on to their market share. The product sales are high and
very protable so they generate a good amount o cash or the
business. As the products have a strong presence in the market,
businesses can even charge slightly higher prices to increase their
prot margins.
4 Marketing

 Problem children or question marks. These are products with


high market growth and low market share. They are a concern to
businesses because o the large amount o money needed to increase
their share in the market. Moreover, the high market growth could
mean that the products are operating in a ercely competitive market
and need a good marketing strategy i they are to succeed. B usinesses
should think hard and be very selective about which problem children
they should develop into stars and which ones should be eliminated.

 D ogs. These are products Market share


that have low market share high low
and low market growth.
They operate in markets
that are not growing or
high

in declining markets and


thereore generate little
Market growth

income or the business. Stars Question marks


They oer low uture
prospects or the rm and
may need to be replaced.
low

B usinesses with many o


these products may be
aced with cash- fow
problems i they continue Cash cows Dogs
sustaining them.
Figure 4.5.3. The BCG Matrix

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4 . 5 T H E F O U R P S ( P R O D U C T, P R I C E , P R O M O T I O N , P L A C E )

BCG Matrix strategies


In an eort to support the stars, cash cows, problem children, and dogs,
the ollowing strategies could be used:

 Holding strategy  the ocus here is on products with a high


market share, to ensure that they maintain their current position
in the market. S ome investment will be needed to ensure sustained
consumer demand.

 B uilding strategy  this centres on turning problem children into


stars. Money rom the cash cows could be invested in promoting or
distributing the product so as to increase market share.

 Harvesting strategy  the ocus here is on milking the benets


o products with a positive cash fow. These products provide the
necessary nance, which could be used in investing in the other
portolio products.

 D ivesting strategy  this is where the poor- perorming dogs are


phased out or sold o. The resources reed up rom this will need to
be used well in boosting the perormance o the other products in
the portolio.

A product portolio that has a good number o stars and cash cows
( nance generators) will eectively be able to invest in the other
( high market growth) products, or example problem children.
However, a relatively large number o dogs and problem children can

4 Marketing
seriously drain any positive cash fow rom the business i this is not
well checked. Key terms
Product
The limitations o the Boston Matrix any good or service that is
ofered to the market with the
 It ocuses on the current market position o the rms products, with
aim o satisying consumer
little advice or inormation or uture planning.
needs or wants
 It may be a time-consuming and complex exercise or businesses
to dene or classiy their products according to market share and Product life cycle
market growth. the course a product passes
rom its development to its
 High market share does not necessarily equate to high prots. This is decline in the market
because sales revenue could be gained using competitive pricing that
may have a downward eect on a rms protability. Extension strategies
plans by rms to stop sales
rom alling by lengthening
Student workpoint 4.9 the products lie cycle
Be a thinker Boston Consulting Group
1 . D raw the product lie cycle and explain each o its stages. Matrix
2 . Why are extension strategies important to a business?
an analysis method o a rms
product portolio regarding
3 . D iscuss the signicance o the varying product portolio in the its market share and market
B C G Matrix or a large business. growth

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4 M AR KE T I N G

Branding
A brand may be dened as a name, symbol, sign, or design that
dierentiates a rms product rom its competitors. B randing is the
process o distinguishing one businesss product rom another and can
add great value to a product. B randing can have a strong infuence on
how consumers view or perceive a product. Examples o well-known
global brands include Nike, S amsung, C oca- C ola, Google, and KFC ,
among many others.

Aspects o branding
Brand awareness
This reers to the ability o consumers to recognize the existence and
availability o a rms good or service. To eectively promote a product,
creating brand awareness is a major step businesses should take. In
addition, it is important when promoting related products because
there is usually very little dierence between one rms product and its
competitors products. As a result, the product with the greatest brand
awareness will sell more than its competitors products. For example, in the
beverage industry there are very many sot drinks available in the market.
However, the name Coca-Cola is easily recognized by most consumers,
clearly showing the image it portrays in their minds. A high level o brand
awareness oten leads to higher sales and can serve as a strong indicator to
competitors o the amount o market share a product commands.
4 Marketing

Brand development
This is any plan to improve or strengthen the image o a product in the
market. It is a way o enhancing the brand awareness o a product by
increasing the power o its name, symbol, or sign, ultimately leading Key terms
to higher sales and market share. B usinesses may have to invest more
in promotional campaigns such as sales promotions and advertising Brand
to persuade consumers to purchase their products and thereore a name, symbol, sign, or
urther develop their brands. O ering ree samples is a common way design that diferentiates
businesses producing consumables, such as C adburys, use to provide an a rms product rom its
opportunity or consumers to taste or try their products in an eort to competitors,
woo them to buy their brands.
Branding
Brand loyalty
the process o distinguishing
This is when consumers become committed to a rms brand and are willing
one rms product rom
to make repeat purchases over time. Brand loyalty is a result o brand
another
preference, where consumers preer one brand over another. Customers
with brand loyalty will consistently purchase products rom their preerred Brand awareness
brands, despite the high prices o some products, because they eel the the ability o consumers to
added value the brand carries justies its price. Successul businesses will recognize the existence and
oten employ a variety o marketing strategies to cultivate loyal customers. availability o a rms good or
In so doing, these businesses develop brand ambassadors. These are service
consumers who will market a particular brand by talking positively about
it among their colleagues, riends, or relatives. They help provide ree Brand loyalty
marketing by word o mouth, which is very eective in enhancing the when consumers become
image and reputation o a business. Samsung is a name that is establishing committed to a rms brand
strong brand loyalty in the electronics industry and beneting signicantly and are willing to make repeat
rom consumer recommendations or marketing by word o mouth. purchases over time

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4 . 5 T H E F O U R P S ( P R O D U C T, P R I C E , P R O M O T I O N , P L A C E )

Brand value
This reers to how much a brand is worth in terms o its reputation,
potential income, and market value. B rand value is the extra money a
business can make rom its products because o its brand name. B rands
that have a high value are regarded as considerable assets to a business.
This is because consumers are willing to pay a high price to obtain such
brands. O ne example would be a consumer purchasing a higher-priced
coee at S tarbucks instead o a coee at another ca. Such brands also
increase the overall value o a business. B rand values are an expression
o a brands personality and act as a code by which a particular brand The values associated with
lives. B rand values are also those things that cause customers to buy Starbucks keep many customers
a frms product rather than its competitors product. They help in coming back, even though
dierentiating a business and making it seem in some way special and cheaper alternatives are available
better than its competitors. Emphasizing a frms brand value is thereore
at the heart o successul branding.

The importance of branding


B randing is one o the most important tasks o marketers. D espite the
heavy initial investment required in ensuring that a brand is widely
known and recognized, it is an essential actor or any type o business 
rom the start-up to the large, well- established companies.
For start- ups, branding is about giving customers a clear image with
which they can associate the business. As the business grows, it can

4 Marketing
work on customer perceptions o its image, and try to establish its brand
so that it can be recognized immediately. Initially, it is critical that the
brand complements the market and meets the expectations o the target
audience. B randing that does not meet the expectations o its target
audience is bound to result in decreased sales.
B usinesses with well-known brands can use price skimming or charge
high prices or their products because o the image the brand has in
the minds o consumers. C onsumers will associate such brands with
consistently high quality, enabling the businesses to make good sales and
earn high proft margins on a regular basis. For example, Mercedes B enz
and B MW have consistently provided good- quality cars to the global
market and their brands have been viewed as representing good quality
by most consumers.
Moreover, customers make j udgments about certain products and
services based on the way they are presented to them. S omething as
simple as choosing the right colour or a frms brand can have a massive
impact on the way it is perceived by the general public. For example,
men may not particularly like their gym being painted pink.
Key term
A frms brand name can provide legal protection to a products specifc
eatures to prevent the product being copied by competitors. B randing Brand value
provides the product with a unique name that makes it dierent rom how much a brand is worth
its competitors, thereore enabling the business to have a sense o in terms of its reputation,
ownership o its products. For example, companies such as Nike, Nestl, potential income, and market
and Toyota have been able to distinguish themselves well in their value
respective industries.

301
4 M AR KE T I N G

E ective branding can enable a sense o personal identifcation and


emotional connection among consumers. The key is the impression that TOK discussion
branding leaves on potential customers. I the impression is positive, the
Is it possible to measure
chances o having repeat customers are high. Good brands communicate
brand loyalty?
messages that ensure that their target customers respond positively.
There is a saying: The frst impression is the lasting impression.
Thereore, to succeed, businesses need to use enough resources to build
a good brand reputation.

The importance o packaging Key term


Packaging reers to the designing and production o the physical
container or wrapper o a product. Packaging plays a signifcant role in Packaging
marketing and can help in distinguishing one product rom an other. concerns the design and
Together with getting the other elements o the marketing mix right, production o the physical
getting the right packaging is critical. Packaging has the ollowing container or wrapper o a
important unctions in marketing: product
 It p rovides p hysical p rotection. Packaging protects a product
rom getting spoilt or damaged, especially during transportation.
It must also provide a good cover against dust, direct light, or high
temperatures.
 It offers convenience. A good package should make it easy or
consumers and distributors to handle the product. This could include
the ability to reuse, recycle, and easily dispose o the product.
4 Marketing

 It p rovides information. The labels on packages can be used to


relay important inormation to the consumer. Food containers may
provide inormation on the particular ingredients a product contains.
Technological products may contain inormation on how to use
the item. It may be a legal requirement or companies producing
cigarettes and alcohol to provide warnings on their packages
regarding the consumption o these products.
 It can help reduce security risks, especially during transportation.
Packages designed with tamper-proo eatures can help deter
intentional tampering with the product. These eatures can also help
reduce the risks o product pilerage.
 It aids p romotion. The package should be eye-catching and appeal
to the consumer. The colour and shape o the package is key in
reinorcing and proj ecting the brand image o the product. This can
also help in dierentiating a frms product rom its competitors.
Packages with attractive graphic designs can encourage impulse
buying or unplanned purchases by potential buyers o a product.
This is especially important in supermarkets that stock a wide variety
o consumables, where good packaging can create instant recognition
o a frms product.
C onsidering the important role packaging plays today, it is not surprising
that a great deal o time and money is spent by frms on researching Packaging ulfls a variety o
the best way o designing and producing a package that will attract the roles. Here it not only protects
majority o the consumers to their products. Firms should also consider the product, but also provides
the impact their packages have on the environment and heed growing nutritional inormation

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4 . 5 T H E F O U R P S ( P R O D U C T, P R I C E , P R O M O T I O N , P L A C E )

environmental concerns. For example, in many countries supermarkets


are under pressure to reduce the use o plastic bags when packing
goods or consumers and instead go green by using environmentally
responsible packaging.

Price
Price plays a signifcant role in the marketing mix because it is the only
P that generates revenue or a business. In essence, the other aspects
o the marketing mix are associated with costs. Price reers to the money
customers pay or give up or having or using a good or service. In an
eort to meet their marketing obj ectives, businesses need to set the
appropriate pricing strategies or new and existing products.

Cost-plus pricing (mark-up pricing)


C ost-p lus p ricing (mark-up p ricing) reers to adding a mark- up to
the average cost o producing a product. The mark-up is a percentage
o the proft a frm wishes to gain or every product that it sells. The
average cost is the cost per unit or the total cost divided by the number
o products produced. For example, i the total cost o producing 1 0, 000
packets o biscuits is US $ 2 0, 000, and the business wants to calculate how
much it would sell each packet or and get a 5 0- per- cent mark- up on
each packet, it would use the ollowing cost-plus pricing method. First,
it would calculate the average cost, which is US $ 2 ( 2 0, 000/1 0, 000) .

4 Marketing
S econd, it would work out the mark- up proft, which is $ 1 ( 5 0 per cent
o US $ 2 ) . Finally, it would add the average cost to the mark-up to get
US $ 3 as the selling price.

Advantages D isadvantages
 It is a simple and quick  It ails to consider market needs
method o calculating the or customer value when setting
selling price o a product. prices.
 It is a good way to ensure  S ince competitors prices are not
that a business covers its considered, a frm could lose
costs and makes a proft. sales i it sets a selling price that
is higher than its competitors.

Penetration pricing
S etting a low initial price or a product with the aim o attracting a
large number o customers quickly and gaining a high market share
Key term
is known as p enetration p ricing. This could be used by businesses
either introducing a new product in an existing market or entering Cost-plus pricing
new markets with existing products. This is a strategy used in mass refers to adding a mark-up to
marketing. As a frm gains market share it also can start to raise its price the average cost of producing
slowly. For example, IKEA is known to have entered the C hinese market a product
by using this strategy.

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4 M AR KE T I N G

Advantages D isadvantages
 As the prices are low, consumers are  Gaining high sales volume does not necessarily
encouraged to buy the products and this mean achieving high profts, especially where
leads to high sales volume and market share the prices are too low.
or the business.
 C ustomers may perceive the product to be o
 The high sales volume can lead to decreases low quality i the price is kept too low.
in the costs o production and increases in
 Penetration pricing is only suitable or use in
stock turnover.
markets that are very price sensitive. Thereore,
as businesses increase their prices over time
they risk losing potential customers, who may
seek lower-priced products rom rival frms.

Price skimming
Price skimming is when frms set high prices when introducing
new products to the market. This strategy is usually used or a limited
period with the obj ective o gaining as a high proft as possible. These
high prices are usually aimed at various market segments where the
frm can obtain short- run profts so as to recoup its high research and
development costs. Technological companies that produce and sell
phones and computers, such as Apple, are known to use price skimming
when initially introducing their products in the market, beore lowering
4 Marketing

their prices over time.

Advantages D isadvantage
 C onsumers associate the high  The high prices may
price with a high- value or discourage some consumers Key terms
high- quality product and an rom buying the product.
Psychological pricing
enhanced brand image.
when rms consider how
 Firms are able to obtain initial pricing afects consumers
high revenues that help in perception o the value o their
recovering their research and products
development costs.
Loss leader
charging a low price or
Psychological pricing a product, usually below
its average cost, to attract
Psychological p ricing reers to when frms consider how pricing aects
consumers to buy other
consumers perception o the value o their products. It considers the
higher-priced products
psychological eect o pricing on consumers. C onsumers may associate
a high-priced product with high quality, or example designer clothing. Price discrimination
O n the other hand, frms may reduce their prices slightly to persuade charging diferent prices to
consumers who may be looking or value or money. For example, they diferent groups o consumers
may charge US $ 9. 95 instead o US $ 1 0 or a given product  a strategy or the same product
common in most supermarkets that sell requently purchased products.

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4 . 5 T H E F O U R P S ( P R O D U C T, P R I C E , P R O M O T I O N , P L A C E )

Advantages and disadvantage of psychological pricing


Advantages D isadvantages
 The psychological eect o  Using prices such as
selling at a slightly lower price US $ 1 99 or US $ 9.99 may
can obtain large revenues be inconvenient or some
or a frm selling in large businesses that require whole
quantities. numbers in their transactions,
or example transport
 Since it looks at consumers
businesses.
perceptions, it is a strategy
that can be suitably applied in
many market segments.

The loss leader


B usinesses that charge a low price or a product, usually below its
average cost, reer to that product as a loss leader. The aim o this
strategy is to attract many customers. Large supermarkets use this
strategy by selling some products at a loss with the view that customers
will also buy the other higher- priced ( proftable) products and thereore
compensate or any losses made.

Advantages D isadvantages

4 Marketing
 B usinesses selling a large  Firms using this strategy may
number o requently be accused by competitors o
purchased products may undercutting them by using
attract many customers and unair business practices.
beneft rom higher overall
profts.
 B usinesses may use loss
leaders as a promotional
strategy to encourage
consumers to switch to their
brand instead o buying the
competitors brands.

Price discrimination
C harging dierent prices to dierent groups o consumers or the same
product is reerred to as price discrimination. For eective price
discrimination certain conditions have to be satisfed. First, the business
has to have price-setting ability. This means that a frm can vary its prices
to charge higher prices in a market that is not very competitive. Second,
the consumers should have dierent price sensitivities or elasticities o
demand. This is a measure o how consumers respond in their buying
patterns as a result o changes in the price o a product. I the change
in price leads to a greater than proportional change in the quantity
demanded, we say that consumers have price elastic demand, i.e. they
are very sensitive to changes in price. On the other hand, i a change

305
4 M AR KE T I N G

in price leads to a less than proportional change in demand, we say


that consumers have price inelastic demand, i.e. they are less sensitive Key terms
to changes in price. For example, sellers will lower the prices o their
Competitive pricing
products i the demand is elastic as there is a possibility o getting higher
total revenue. Finally, the markets should be separated to ensure that the charging a price that is in
product is not easily traded. For example, the prices or childrens and line with or just below the
adults tickets may dier or the same music concert. competitors prices

Advantages D isadvantages
 Time- based price  B usinesses need to be certain
discrimination can be o about the type o elasticity o
beneft to either consumers demand o their consumers.
or producers. D uring peak For example, charging higher
times businesses such as prices in a market with
phone companies charge high elastic demand could lead
prices and so generate higher to lower sales revenue. In
revenues, while during addition, i frms were still to
o- peak times consumers charge a lower price in the
beneft rom the lower prices elastic market, they should
charged. ensure that the extra cost o
producing and selling more
products does not exceed the
extra revenue.
4 Marketing

Competitive pricing
C omp etitive p ricing is a pricing strategy that takes into
consideration what competitors are charging or their product.
It involves charging a price that is in line with or j ust below the
competitors prices. It is mostly applicable to businesses selling similar
products. C harging prices lower than the competitors with the aim
o driving them out o the market is known as p redatory p ricing,
also known as destroyer p ricing because it aims to eliminate any
opposition, and could include frms charging prices lower than their
average costs o production. I successul, businesses can subsequently
dominate the market and charge higher prices. This strategy is
commonly used in highly competitive markets where the products are
in the maturity or saturation stages in the product lie cycle.

Advantages D isadvantages
 C onsumers beneft rom the  Predatory or destroyer
low prices, especially in very pricing is a orm o anti-
competitive markets. competitive behaviour and
is illegal in many countries
 Ater using destroyer pricing,
because it is used to restrict
remaining dominant frms
competition.
could gain higher sales
revenue as a result o the
higher prices charged.

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4 . 5 T H E F O U R P S ( P R O D U C T, P R I C E , P R O M O T I O N , P L A C E )

Student workpoint 4.10


Be knowledgeable
1 . Analyse the importance o branding or a start- up business.
2 . Examine the most appropriate pricing strategies needed when
introducing a new product to the market.

Promotion
Promotion is concerned with communicating inormation about a frms
products to consumers. The main aim o promotion is to obtain new
customers or to retain existing ones. Promotional activities should be
communicated clearly to consumers and provide useul inormation to
enable them to purchase a frms product.
S ome promotional obj ectives include:
 creating awareness or inorming consumers o a new or improved
product in the market
 convincing or persuading consumers to purchase a frms products
instead o its competitors products
 reminding consumers o the existence o a product in order to retain
existing customers or gain new customers or a product

4 Marketing
 enhancing the brand image o the product as well as the corporate
image o the business.
Promotion can be categorized into two orms: above- the-line promotion
and below- the- line promotion.

Above-the-line promotion
This is a paid orm o communication that uses independent mass
media to promote a frms products. It includes advertising through the
television, radio, or newspapers so as to reach a wide target audience.
In this case the control or responsibility o advertising is passed on to
another organization.
Advertising
Advertising plays a central role globally in passing on inormation
about a product to a particular target audience. C hoosing the right
media or advertising is important in ensuring a successul promotional
campaign. Advertising can be categorized as ollows:
 Informative advertising  the ocus here is to provide inormation
about a products eatures, price, or other specifcations to
consumers. It increases consumers awareness o a frms product
so as to enable them to make rational decisions about what to buy.
It is useul when businesses want to introduce a new product to
the market. Examples o inormative advertising include classifed
advertisements in newspapers and government campaigns to
discourage drink-driving.

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4 M AR KE T I N G

 Persuasive advertising  this aims at convincing customers to buy


one frms product instead o a competitors product. It persuades TOK discussion
consumers to think that they really need the product and should buy
Many advertisements use
it. It makes consumers make unplanned purchases or a product  an
scientic knowledge. Why
act known as imp ulse buying. It helps in enhancing a products
do they do this and what
brand image. For example, when advertising a slimming product,
does this tell us about the
frms may use pictures o how people looked beore they took the
hierarchy o diferent areas o
product and how they look ater they consumed the product  in this
knowledge?
case they show the picture o a very ft individual based on the idea
that most people would want to look like that.
 Reassuring advertising  the ocus is on existing customers, to
remind them that they made the right purchasing decisions when
they chose to buy the frms product and that they should continue
purchasing it. C oca-C olas promotional campaigns are well- known
examples o this strategy.
The main orms o advertising media include television, newspapers,
magazines, cinema, radio, posters, billboards, and the Internet.

Below-the-line promotion
This is a orm o communication where the business has direct control
over its promotional activities. Unlike above- the- line promotion, it does
not depend on the use o independent media. B elow- the- line promotion
can ocus the promotional activities on consumers they know or on
4 Marketing

those who are interested in their products.


Forms o below- the- line promotion include:
 D irect marketing  this ensures that the product is aimed directly
at the consumers. It eliminates the use o intermediaries and
thereore can save the business money. D irect mail, which is a orm
o direct marketing, reers to sending inormation about a product
Key terms
through the post or via email. B usinesses that commonly use this
method include restaurants sending out their menus or property Above-the-line promotion
developers sending out their catalogues. A limitation o this method a paid orm o communication
is that most consumers can regard the inormation as j unk and not that uses independent mass
pay any particular attention to it. media to promote a rms
 Perso nal selling  this involves the sale o a frms product products
through personal contact. It makes use o sales representatives
Below-the-line promotion
and can be done ace to ace or over the telephone. It is
commonly used when selling expensive products such as cars a orm o communication that
or technically complex products such as specialized machinery. gives a business direct control
In these cases, customers will need to be reassured that they are over its promotional activities
making the right purchasing decision. They can then be given so that it is not dependent on
personal and individualized attention. A maj or disadvantage o the use o independent media
this method may be the cost involved as it may be expensive to
Promotional mix
retain a sales representative team or this type o selling, especially
i they are also paid by commission. a balance o both above-
the-line and below-the-line
 Public relations  these are promotional activities aimed at methods used by a rm to
enhancing the image o the business and its products. It includes support its marketing goals
the use o publicity or sponsorships. For publicity purposes a

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4 . 5 T H E F O U R P S ( P R O D U C T, P R I C E , P R O M O T I O N , P L A C E )

business could hold a press conerence where it invites the media


and provides inormation about a social responsibility proj ect it
would like to launch. In the process, the business could showcase
its products and gain ree publicity or them. Through sponsorship,
a business may provide nancial support to an organization, team
or event. E xamples include S amsung sponsoring C helsea ootball
club in the UK and Kenya Airways sponsoring the Kenya national
rugby team.
 S ales p romotions  these are short- term incentives provided by a
business with the aim o increasing or boosting its sales. E xamples
include the ollowing:
 Money- o coupons  discounts provided to customers when
a product is purchased. The coupons are oten ound in
newspapers, leafets, or magazines.
 Point- o- sale displays can be used or attractive arrangement
or display o products at the location where the business
sells the items. The main obj ective is to draw the attention o
consumers and encourage impulse buying. It is commonly used
by supermarkets when selling conectionary products such as
sweets, chocolates, and other snacks.
 Free oers or ree gits can be oered to customers such as a ree
charger when buying a cellphone. Giving ree samples such as
through ood taste sessions outside supermarkets and oering

4 Marketing
ree sachets or particular products can also help encourage sales.
 C ompetitions  ater purchasing a product, customers can
enter a draw where they stand a chance to win a prize in the
competition. This method is commonly used during estive
seasons to attract a large number o customers.
 B O GO F ( buy one get one ree) is a promotional strategy that
can be used to attract new customers or assist in eliminating
excess stock. It is oten used in the maturity or saturation stages
o a products lie cycle.

The promotional mix


A successul promotional mix will involve a good balance o both above-
the-line and below- the- line promotional methods. This could involve
using an appropriate mix o advertising, sales promotions, personal
selling, direct marketing, and public relations when communicating the
advantages o a product to customers or supporting a rms marketing
goals. However, certain actors will need to be considered or an eective
promotional mix:
 C ost: D oes the marketing budget support the use o a particular
promotional method?
 Legal framework: Has the law been taken into account when
deciding on the various promotional methods to use?
 Target market: What specic segment o the market is the product
aimed at?

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4 M AR KE T I N G

 S tage in the p roduct life cycle: Which promotional methods will


be most appropriate at the dierent product lie cycle stages?
 Type of product: Has the promotional method considered the nature
o the product and how it would be successully sold to customers?
B usinesses will thereore need to consider the above questions careully
when designing and developing their promotional mix. Moreover, they
will need to be fexible and where necessary tweak the promotional mix
to succeed in achieving their marketing obj ectives.

the impac of new echnology on promoional


sraegies
In the marketing context, technology is dened as the inormation
or tools required to sell a rms good or service. O ver the last decade,
technology has changed rapidly and marketers are increasingly
incorporating it in their marketing strategy. Important technological
terminologies being used today include social networking, social
media marketing ( S MM) , and viral marketing. The impact o these on
promotion will be explored below.
S ocial media is dened as the technology that connects people. It is any
medium where content is shared or where individuals chat.
S ocial networks are the places where social interactions happen,
which include sharing, discovering, or advertising inormation.
4 Marketing

E xamples o social networks include Facebook, Twitter, LinkedIn,


and MyS pace.
A social networking service is a platorm to build social networks
or social relations among people who, or example, share interests,
activities, backgrounds, or real- lie connections. A social network
service consists o a representation o each user ( oten a prole) , his
or her social links, and a variety o additional services. Most social
network services are web- based and provide means or users to interact
over the Internet.
S ocial media marketing ( S MM) reers to the way technology is used Key terms
to build relationships, drive repeat business, and attract new customers
through individuals sharing with other individuals. S MM is the process Social media marketing
o gaining website trac or attention through social media sites. S MM the use of technology to build
programs usually centre on eorts to create content that attracts relationships, drive repeat
attention and encourages readers to share it with their social networks. business, and attract new
A corporate message spreads rom user to user and presumably resonates customers by individuals
because it appears to come rom a trusted, third- party source, as opposed sharing with other individuals
to the brand or company itsel. B asically, S MM is promotion through
Viral marketing
word o mouth powered by technology.
a form of peer-to-peer
Viral marketing is a orm o peer- to-peer communication where communication where
individuals are encouraged to pass on promotional messages within individuals are encouraged
their social networks. Not so long ago, advertisements were mostly seen to pass on promotional
in newspapers, magazines, or television. However, with the advent messages within their social
o the Internet things have changed. Today, advertisements appear as networks
banners, pop- up advertisements, social media, and YouTube videos.

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4 . 5 T H E F O U R P S ( P R O D U C T, P R I C E , P R O M O T I O N , P L A C E )

Advertisements in the orm o YouTube videos are oten called viral


ads, especially when they gather millions o views, and are part o what
is known as a viral marketing campaign.
The main obj ective o viral marketing is to increase brand awareness
through replicating a viral- like process, like the spread o a virus in
computers. O ten, viral videos are spread through sharing by viewers,
which is more like promotion through word o mouth. Viral marketing
thereore oten comes in the orm o videos, but also in games, sotware,
images, or messages.
Another key goal o viral marketing is to create inectious, viral messages
that appeal to their target market with high social networking potential
that can easily spread through individuals.

The benefts o new technology on promotional strategies


The general advantages o using social networking, SMM, and viral
marketing are as ollows:
 Wide reach  the Internet has enabled frms to reach out to
more consumers at a more personal and interactive level. A large
percentage o the Internets total population uses social networking
sites such as Facebook, Twitter, and YouTube, where time spent in
social media ar exceeds time spent on email.
 E ngagement  in most cases, customers and other key stakeholders
are participants rather than passive viewers. This also means that

4 Marketing
a frm can fnd out what challenges customers are acing and what
they like and do not like about the frms product oerings. E ngaging
in ongoing dialogue can be more valuable than any kind o paid
market research and it helps to create a sense o community.
 Market information  social networking, S MM, and viral
marketing provide useul and valuable measurable data on trends,
consumer interaction, eedback, public opinion, brand activity, and
customers buying habits.
 C ost savings  using social networking, S MM and viral marketing
is relatively less expensive than using traditional methods such as
television advertising.
 B rand recognition  the sharing and spreading o inormation,
especially due to repeat exposure, can increase consumers
awareness o particular brands, leading to brand loyalty and an
enhanced brand image.
 S p eed  coupled with high Internet speed, advertisements can reach
a wide audience in a short space o time.

The limitations o new technology on promotional strategies


D espite their benefts, social networking, SMM, and viral marketing
have the ollowing general drawbacks:
 Accessibility p roblems  regions with no computers or Internet,
areas with poor Internet connectivity, will miss out on any ongoing
promotional campaign that uses these tools.

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4 M AR KE T I N G

 D istraction  the use o pop-ups in advertising can be viewed as


time- wasting and annoying by customers who want to ocus on
other issues.
 Lurkers  these are individuals who just sit tight and absorb
inormation. According to TopRank Online Marketing B log, 34 per cent
o social media users are lurkers, while others are newcomers who have
not quite honed their online social skills. These are individuals who
may not be active in helping a frm promote its product.
D espite these negative eects o social networking, SMM, and viral
marketing, the benefts in many ways outweigh the drawbacks and,
most importantly, these technologies provide great ways to drive repeat
business and attract new customers.

guerrilla marketin
Levinson and Lautenslager ( 2 009) defne guerrilla marketing as a
marketing orm which involves the use o untraditional activities
that help companies weaken their rivals and stay successully on the
market, even with limited resources. Guerrilla marketing thereore
uses unconventional marketing strategies that have an innovative and
signifcant promotional eect at hal the budget spent on traditional
marketing strategies or the same obj ective.
The term guerrilla marketing is coined rom military and warare-related
terminology. It adapts the hit and run guerrilla warare tactics used
4 Marketing

by Mao- Tse Tung, where you hit i you can win but run i you cannot.
Guerrilla marketing activities are eye- catching and surprising and so
highly efcient in capturing customers attention.
The dierences between traditional and guerrilla marketing are
summarized in table 4.5 .3 .

Table 4.5.3. Diferences between traditional and guerrilla marketing


Traditional marketing Guerilla marketing
The primary investment is money. The primary investments are time, efort, and creativity.
It orms a model or big businesses. It ocuses on small businesses.
Success is measured by sales. Success is measured by prots.
What can I take rom the customer? What can I give to the customer?
Mass media (direct mail, radio, television, newspapers) are Marketing weapons are numerous and most are ree.
used.
Advertising works. Types o non-traditional marketing succeed.
How much money do you have at the end? How many relationships do you have at the end?
Source: Based on Levinson, J.C. and Lautenslager, A. (2009) Guerilla Marketing in
30 Days, second edition. Entrepreneur Press. Irvine, CA.
Key term
Principles o guerrilla marketing Guerrilla marketing
The ollowing principles characterize guerrilla marketing. They can be a low-cost unconventional
remembered using the acronym APE NS . marketing strategy that has
 Activity  frms need to have an awareness o the available an innovative and signicant
opportunities that exist to make their products known and they promotional efect
should seek ways o doing this when an opportunity presents itsel.
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4 . 5 T H E F O U R P S ( P R O D U C T, P R I C E , P R O M O T I O N , P L A C E )

 Presence  frms should look or ways to make their business


known to the market. This could be through email, orums,
discussion boards, radio, magazine, street posters, grafti, and so on.
 E nergy  businesses need to note that every contact and every
day is an opportunity to market their company. This is known as
3 60- degrees marketing.
 Networks  businesses should be on the lookout or new contacts
and ocus on building relationships.
 S mart  frms should ensure that they do not oend customers.
However, some businesses have deliberately oended customers and
used the controversy to create awareness.

Methods used in guerrilla marketing


 Peer marketing  bringing people with similar interests or ages
together to build up interest in the product
 Product give-aways including ree demonstrations and consultations
 SMS texting and video messaging
 Roach baiting and buzz marketing  where actors are used to behave
as normal customers to create interest, controversy, or curiosity in a
product or service
 Intrigue  the process o generating mystery to engage customers

4 Marketing
 Live commercials  using people to do live commercials in key places
such as clubs and pubs
 B ill stickers  an approach used to promote D Js and club events

The benefts o guerrilla marketing


 Low cost  the types o activities involved do not require large
fnancial outlay, so it is a very low-cost way o marketing.
 Flexibility  it can be changed easily because it is small scale. As
a result, the campaign can respond to changing conditions and
circumstances quickly.
 S imp licity  many guerrilla marketing methods are simple and easy
to implement.
 Identifed target market  activities can be targeted at the market
that is most likely to buy the product or service. This improves the
efciency o the marketing campaign and improves returns.
 C ommunication tool  it provides new ways o communicating
with customers. For example, Nike sought to communicate with
consumers through instant messaging. In a competition called
S peed Mob, pairs o participants were sent questions about new
Nike products via instant messages; the frst participant to answer the
questions correctly progressed to the fnal round.
 Interaction opportunity  it can be used as a platorm to interact
with the audience. In 2 005 , B urger King implemented a guerrilla
marketing campaign to increase sales in Asian countries. The

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4 M AR KE T I N G

campaign, designed by O gilvy RedC ard, aimed to attract more


consumers into B urger Kings restaurants. For example, the company
printed I B K on T-shirts and placed them on statues o Ronald
McD onald, it placed large ootprints rom McD onalds to B urger King,
and it put signs on empty benches that said Gone to B K  Ronald.
 Accessibility  most guerrilla marketing activities aim to be
as accessible to customers as possible, thereore increasing the
customer base. For example, to promote its O range online banking
solutions, ING D irect initiated guerrilla marketing campaigns in the
metropolitan regions o B oston, S an Francisco, and Washington D C .

The negative efects o guerilla marketing


 D enting the brand image  i guerrilla marketing strategies are
directed to the wrong group o people or not executed properly, they
can seriously hurt the companys brand image.
 High negative attitudes  since the main goal o some advertisements
is to evoke a range o negative emotions, such as ear and anger,
guerilla marketing campaigns may lead to highly negative attitudes
towards the brand or the whole company. O veruse o ear- related
marketing campaigns may cause the overall eectiveness o the
promotion to decline.
 Negative imp act on social life  or example, billboards placed in
the middle o a highway or in places with high trafc congestion may
4 Marketing

cause trafc accidents.


 E thical issues  or example, in the US A, in an advertisement used
to promote the Kill Bill movie, a shocking image was used in the
restroom o a movie theatre, seen rom outside the toilet cabin. It
was a realistic image o blood leaking rom under the door o the
cabin. However, when the door was opened, it became clear that the
image was j ust a sticker giving the release date o the movie. S uch
an advertisement does not necessarily threaten the psychology o an
adult, but it may cause problems to children, which may result in
their inability to use the toilet alone.
O ther common pitalls o guerrilla marketing are trespassing on private
property, deacing private or public property, and not getting permission
rom property owners when required. For example, in Singapore,
placing B urger King stickers on bus schedules to indicate store locations
is considered an act o vandalism. In addition to getting permission rom
private owners, some irregular action held in public places should also be
approved by local government.
D espite their drawbacks, the key characteristics o being untraditional,
creative, surprising, and efcient make guerrilla marketing strategies one
o the most innovative and eective promotional methods businesses
can use. Instead o the traditional method that concentrates on me TOK discussion
marketing and talking only about the business, through guerrilla What role do logic and emotion
marketing a business encourages customers to consent willingly to play in marketing? Is there
interact with it and aims or this interaction to continue over a period o room or both?
time. Gallagher ( 2 004) summarizes it well by saying: What matters in

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4 . 5 T H E F O U R P S ( P R O D U C T, P R I C E , P R O M O T I O N , P L A C E )

guerrilla marketing is what the frm does to dierentiate itsel rom its
rivals and its success in reaching a broader customer potential. 1

Student workpoint 4.11


Be a thinker
1 . D istinguish between above- the- line and below-the- line
promotional strategies.
2 . Using a business o your choice, evaluate how new technologies
are having an impact on its promotional strategies.

Place
Place is about how the product reaches consumers. It is concerned with
how the product is distributed to make it available to consumers. The
distribution system includes getting the right product to the right place at
the right time. D istribution is a crucial element in the marketing mix or
businesses o any size.
Place is important in the marketing mix or the ollowing reasons:
 It reers not only to the location o the business but also to the
location o the customers. B usinesses should thereore develop
strategies to get goods rom their present location to the location o

4 Marketing
consumers.
 It enables businesses to come up with the best ways to distribute
their products efciently and eectively to consumers.
 The use o intermediaries such as wholesalers and retailers helps
businesses to store and market their products and enhance their
brand image.
 The growing global use o the Internet is making it easier or businesses
to reach a wide range o consumers directly with their products.

Types of distribution channel


A distribution channel or channel o distribution is the path taken by a
product rom the producer to the consumer. Some distribution channels
make use o intermediaries. These are middle people such as wholesalers,
agents, and retailers that lie in the products path rom the producer to
the consumer. The common distribution channels are described below.
Zero intermediary channel
This is where a product is sold directly rom the producer to the
consumer. For example, agricultural products can be sold through this
method. O ther examples include the use o mail order catalogues and
e- commerce. In the service sector, airline ticket bookings can also be
made via this method.

1
Gallagher, B. (2004) Guerilla marketing and branding. CA: Marketing Turkiye Press.
Hamel, G. and Prahalad, C.K. (1996) Competing for the future. Harvard Business School Press.

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4 M AR KE T I N G

One intermediary channel


This involves the use o one intermediary such as a retailer or an agent
to sell the products rom the producer to the consumer. In most cases
it is used where the retailer is operating on a large scale or where the
products are expensive. E xamples include selling expensive urniture or
j ewellery through retailers. In addition, using large supermarket chains
such as Nakumatt to sell various household products, and the use o
travel agents such as Harvey World or fight bookings, are also common
in this distribution channel.
Two intermediaries channel
In this case two intermediaries, which usually include wholesalers and
retailers, are used by producers to sell the product to the consumer.
The wholesalers are important in this channel and act as an additional
intermediary between the producer and the consumer. This channel is
particularly useul when selling goods over long geographical distances.

producer 1
4
7
2
5
8
3
6
9
consumer
* o #

producer retailer consumer

producer wholesaler retailer consumer


4 Marketing

producer agent wholesaler retailer consumer

Figure 4.5.4. Channels o distribution

Table 4.5.4. Advantages and disadvantages o diferent distribution channels


Distribution channel Advantages Disadvantages
Zero intermediary It is low cost. Promotion is done by the producer, which
channel It is ast. could be time-consuming and expensive.
It is ideal or perishable products. The producer incurs all storage and delivery
The producer is the key decision-maker in the costs.
distribution process.
One intermediary Promotion and customer service are done by As the retailers prot mark-up is included
channel the retailer. in the selling price, the product may be
The costs o holding stock are incurred by the retailer. expensive or consumers.
The retailer assists in selling the product at The producer may not be aware o the
convenient places to consumers. promotional strategy used by the retailer.
Two intermediaries The wholesaler incurs storage costs, thereore Two prot mark-ups could lead to a more
channel reducing these costs or the producer. expensive product ofered to consumers.
The wholesaler breaks the bulk or the retailer This channel urther reduces the producers
by providing large quantities in smaller batches. responsibility or promoting products.
This is an appropriate channel when selling over
long distances.

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4 . 5 T H E F O U R P S ( P R O D U C T, P R I C E , P R O M O T I O N , P L A C E )

Student workpoint 4.12 Key term


Be an inquirer Channel of distribution
Examine which distribution channels are likely to be most eective the path taken by a product
or each o these industries: rom the producer or
manuacturer to the fnal
 clothing
consumer
 j ewellery
 bakery.
E xplain your answer.

revision checklist
 A product lie cycle illustrates the six lie cycle stages that a product
passes rom its development, introduction, growth, maturity,
saturation and decline in the market.
 Extension strategies are implemented at the maturity or saturation
stages o a products lie cycle in an eort to stop a rms sales rom
alling by lengthening the products lie cycle.
 The B oston C onsulting Group ( B C G) Matrix is a growth-share matrix
that measures the market growth rate and relative market share o a
rms product portolio by classiying the products as stars, problem

4 Marketing
children, cash cows or dogs.
 B C G Matrix strategies include harvesting, holding, building and
divesting.
 B randing is concerned with distinguishing one businesss product
rom another and has a strong infuence on how consumers perceive
a product.
 Packaging is vital in the marketing mix to dierentiate one product
rom another by designing and producing the physical container or
wrapper o a product.
 Price as one o the marketing mix elements is essential in generating
revenue or a business and reers to the money customers give up or
using a good or service.
 Appropriate pricing strategies include cost plus pricing, penetration
pricing, competitive pricing, price skimming, psychological pricing
and price discrimination.
 Promotions main aim is to obtain new customers or retain existing
ones by communicating inormation about a rms products to
consumers. It can be categorized as either above the line or below
the line.
 Above the line promotion uses independent mass media to promote
a rms products including advertising through the television, radio
or newspapers.

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4 M AR KE T I N G

 B elow the line promotion does not depend on the use o


independent media and frms ocus their direct control on
promotional activities to consumers who they know or those who
are interested in their products e.g. direct marketing, personal selling,
public relations and sales promotions.
 Marketers are increasingly incorporating technology in their
marketing strategy. These strategies include S ocial media marketing
which is a way o building relationships, driving repeat business and
attracting new customers through social media sites. In addition,
viral marketing uses peer-to- peer communication where people pass
on promotional messages within their social networks.
 Guerrilla marketing is a low cost unconventional marketing strategy
that has a great innovative and signifcant promotional eect on a
business.
 Place is about how a frms product is distributed to make it available
to consumers by getting the right product at the right place at the
right time.
 D istribution channels include zero intermediary channel, one
intermediary channel and two intermediaries channel.
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318
4 . 5 T H E F O U R P S ( P R O D U C T, P R I C E , P R O M O T I O N , P L A C E )

Practice question
The Q-D rum: A Revolution in Thinking and Innovation
The problem is obvious. Millions o women and children worldwide
endure backbreaking labour carrying open, unstable, heavy water
containers or long distances.
The solution: the Q- D rum, invented by brothers Hans and Piet
Hendriske. The brothers have obtained a patent ( intellectual property
rights) or producing the Q- D rum.
E ven a child can pull up to 5 0 litres o water in the doughnut- shaped
plastic drum as it rolls along the ground. In a recent test, one amily o
1 3 used the Q- D rum daily, travelling 1 2 000 km in 2 0 months, providing
1 2 0 000 litres o transportable water.
The Q-D rum represents a revolution in thinking and innovation,
claimed D r Paul Polak, who runs an organization helping poor armers
become entrepreneurs. He added, A billion customers in the world need
a US $ 2 pair o eyeglasses, a US$ 1 0 solar light and a US$ 1 00 house. Why
do innovators and designers only research and develop products that
target the needs o the planets richest 1 0 per cent?.
However, despite its simplicity and lie- saving innovation, the Q- D rum
has only sold several hundred so ar. At US $ 5 0 the price is too high or
those who need it most. Until it can be manuactured more cheaply and
approprate distribution channels can be ound, sales will remain low. A

4 Marketing
non- government organization ( NGO ) sponsored by the United Nations
has oered to help with the market development o the Q- D rum, but the
brothers know that signifcant marketing issues still remain.
a) D efne the ollowing terms:
( i) innovation [2 marks]
( ii) distribution channels. [2 marks]
b) Explain the role and importance o obtaining a patent
( intellectual property rights) or the Hendriske brothers
in producing the Q- D rum. [6 marks]
c) Analyse two reasons why innovators and designers only
research and develop products that target the needs o the
planets richest 1 0 per cent. [6 marks]
d) D iscuss an appropriate marketing mix to increase sales
o the Q- D rum. [9 marks] Source: http://ecoscraps.com/
IB , May 2 01 0 fles/2008/09/qdrum1.jpg,
20 October 2008

319
4.6 The extended marketing mix of seven
Ps (HL only)
By the end of this chapter, you should be able to:
 discuss the importance of employeecustomer relationships in
the marketing mix of a service and the cultural variation in these
relationships
 evaluate the importance of delivery processes in the marketing mix
of a service and changes in these processes
 examine the importance of tangible physical evidence in the
marketing mix of a service
 apply the seven Ps model in a service-based market.

People
Interestingly, many businesses work very hard on the other elements
o the marketing mix and pay little attention to the people in the
4 Marketing

businesses who essentially are involved in decision-making on a regular


basis. A frms ability to select, recruit, hire, and retain the best people,
with the right skills and abilities to do the j ob, is a crucial aspect o any
business. C ollins ( 2 001 ) ound that an important actor present in the
best companies was that they frst got the right people, on the bus and
the wrong people o the bus. Ater hiring the right people they then
got the right people in the right seats on the bus. S uccessul businesses
think in terms o getting the right people to carry out specifc tasks and
responsibilities. 1
People are the most important element o any service business. S ervices
are produced and consumed at the same moment, and the specifc
customer experience can be changed to meet the needs o the person
consuming it. People usually buy rom people they like, so businesses
should ensure that their sta have the right attitude, skills, and
appearance at all times. For example, restaurants should encourage
their waiters to dress appropriately, to be courteous, and to smile when
serving customers. O ering customers an opportunity to eed back to
sta can also help to assess how eective customer service is. Examples
include banks providing brie questionnaires asking customers i they
waited too long to be served or questioning cinema goers on the service
experience as they queue to book a ticket. People have an important role
to play in service delivery and maintaining good customer relationships.
B ehind key events such as hosting soccers World C up there are many

1
Collins, J. (2001) Good to Great: Why Some Companies Make the Leap and Others Dont.
HarperBusiness. London.

320
4 . 6 T H E E X T E N D E D M A R K E T I N G M I X O F S E V E N P S ( H L O N LY )

people, or example managers, engineers, ches, and security guards,


who ensure that the service is appropriately delivered to the customers.
Another important actor is that people orm a transactional link
between the organization and its customers. For example, people deliver
the service and they collect money, i. e. they get paid on behal o the
organization or the service. When you go to a restaurant, in most cases
there will be a waiter who greets you on arrival, he or she then takes
your order and serves you what you requested. Ater that you pay the
waiter money or what you consumed, completing the contractual
transaction. Thereore, the peoples role in the customer relationship
between the business and the consumer is vital. C ustomer relationship
management ( C RM) , which ensures that sta are trained to deliver good
customer service, is important in developing a long- term employee
customer relationship.
However, organizations need to deal with the various cultural settings
they are aced with. C ulture includes the way employees perceive or
behave in the organization. Undoubtedly, some cultures may dominate
others in the same organization, with groups o employees having
diering belies and opinions, leading to the ormation o a cultural gap.
It is the organizations responsibility to close this gap and oster a sense
o unity among its employees. This will help in improving teamworking
and will motivate employees to work to achieve the organizations
goals. C onsequently, a motivated workorce can also be seen in how the
employees treat the customers, urther strengthening the employee

4 Marketing
customer relationship. In addition, marketers need to learn and
understand the cultural dimensions o customers to be able to satisy the
customers needs ully.

Processes
This reers to the procedures and policies pertaining to how an
organizations product is provided and delivered. It should inorm Key terms
customers on how easy it is to do business with a particular People
organization. C all centre sta who do not answer customers questions
and products in supermarkets with barcodes that are not recognized the human capital in terms of
when customers are ready to pay are examples o processes that are not skills, attitudes, and abilities
unctioning well and need urgent attention. The more intangible the necessary in the production
product, the more important it is to get the process right. of goods or the provision of
Process also involves how the product is delivered to the consumer.
services
D HL, or example, is known or its ast and efcient delivery o parcels Processes
or documents and prides itsel on having the right systems or processes
to acilitate this. It also ensures that utmost care is taken by doing a the procedures and policies
security check on documents beore they are sent to the recipient. pertaining to how an
This also ensures that the product is delivered in its exact state and organizations product is
orm as required by the sender, maintaining optimal quality standards provided and delivered
throughout. In addition, the sender receives a tracking number they can
Physical evidence
use or tracking the documents path and enquiring about any delay in
delivery i necessary. the tangible or visible touch
At the outset, businesses need to defne clearly the shape their points that are observable to
processes will take so that all stakeholders are ully aware o what to customers in a business

321
4 M AR KE T I N G

do. For marketing to be eective, there are a number o processes that


businesses need to consider, including processes or identiying customer
requirements, handling customer complaints, and handling orders,
among others. I these are tackled well they can go a long way towards
developing customer loyalty and ensuring repeat customers.
These are some o the ways a business can improve on its processes:
 Any measure taken to speed up the delivery o products to customers
is o prime importance.
 A business needs to provide easy and varied payment methods or
customers such as paying over the Internet, paying cash, or paying
on credit.
 Provision o ater-sales services such as technical support reduces
the time a customer has to spend solving problems when using a
product.
 Inorming customers how long their meal will take to be prepared in
a restaurant adds to customer service.
However, ensuring that the right process is in place may be time-
consuming, complex, and expensive, especially or start-up businesses,
which may lack the experience and capital that larger businesses may have.

Physical evidence
4 Marketing

This reers to all the tangible or visible touch points that are observable
to customers in a business. Unlike businesses oering tangible products
where consumers can try, touch, or smell the product beore purchasing
it, service businesses usually depend on customers recommendations
or testimonials, which are usually based on trust. As a result, businesses
need to ensure that they are providing adequate evidence o quality
throughout. E xamples o good-quality evidence include well-groomed
and well-dressed sta, a well- organized reception area, ambient lighting
with pleasant music in a restaurant and ofces located in a clean and
prime location. To create a good customer experience, tangible aspects
must thereore be delivered with the service.
Physical evidence is an important dierentiator in service marketing.
For example, managers o a private school may pay more attention to
providing well- designed and equipped classrooms and spacious ofces
or their teaching sta than managers in public schools, clearly bringing
out the dierentiating element o physical evidence.
The intangible nature o products with a service element, however,
makes it difcult or consumers to evaluate the service being oered,
especially regarding the quality and value or money, beore deciding
to buy. In addition, it is difcult or a business to position new products
with a service element because o their intangible nature. Eectively
ocusing on the tangible aspects o the service oering will enable the
business to remain competitive in the market.
Physical evidence should thereore enable customers to see what is
on oer, prior to purchasing the service oering. B usinesses should also
ensure that the testimonials customers pass on to others about their
product are good and lead to an enhanced image and increased sales.

322
4 . 6 T H E E X T E N D E D M A R K E T I N G M I X O F S E V E N P S ( H L O N LY )

the seven Ps model in a service-based marke


Product
 design
 technology
 perceived usefulness
 convenience of use
 quality
 packaging
Price  brand utility People
 skimming  accessories  employees
 penetration  warranties  management
 value based  organization culture
 cost plus  customer services
 cost leadership  orientation

Place Marketing
 retail mix
 wholesale Physical evidence
 mail order  facilities
 Internet  infrastructure
 direct sales  service delivery
 peer to peer
 multi-channel

4 Marketing
Promotion
 special oers
Process
 advertisements
 uniformity of oering
 endorsements
 service delivery
 user trials
 service consumption
 campaigns
 joint ventures
TOK discussion
Figure 4.6.1. Summary of the seven Ps relevant to a business in the service sector The four Ps and seven Ps
providing intangible products frameworks suggest that
marketing has four or seven
aspects, all of which can
Student workpoint 4.13 be described with a word
that starts with a P. How
Be an inquirer helpful are such analytical
Choose a service-based industry of your choice. Evaluate how important frameworks to you as a
people, processes and physical evidence are in its marketing strategy. knowledge-seeker?

323
4 M AR KE T I N G

revision checklist
 People comprise an essential element of any service business so
businesses should ensure that their employees have the right
attitude, skills and appearance at all times as they are the face of the
organisation. These people also form a transactional link between the
organization and its customers due to their vital role in the long term
customer relationship between the business and the consumer.
 Processes are the procedures and policies pertaining to how an
organizations product is provided and delivered to the consumer.
They inform customers on the ease of doing business with a
particular organization.
 Physical evidence includes the visible touch points that are
observable to customers in a business and is an important
differentiator in service marketing.
4 Marketing

324
4 . 6 T H E E X T E N D E D M A R K E T I N G M I X O F S E V E N P S ( H L O N LY )

Practice question
Fast E ater
Fast Eater, a ast ood restaurant company went public in 1 975 and
until 2 000 had always made a proft. From 2 000, sales in Europe ( the
companys biggest market) started to decline. The ollowing table gives
inormation on Fast Eaters current portolio:

Date of Product Market information Other information


launch
1975 burger rolls high market share but very proftable, core
beginning to all, very low product but proftability is
sales growth beginning to all
1975 ried potatoes high market share but very proftable, core
beginning to all, very low product but proftability is
sales growth alling rapidly
1995 toasted bacon high market share, low very successul product
sandwich market growth
2002 chicken roll alling sales, low market not a commercial success
share in a low growth
market
2002 cheese and alling sales, low market not a commercial success
tomato pizza share in a low growth
market

4 Marketing
D uring the 1 990s, Fast Eater opened stores worldwide at the rate o 2 5 0 a
year. However, by 2 004
Fast Eater was closing restaurants and concentrating on attracting more
customers into existing outlets. Industry analysts suggest that the trend
towards healthier ood is aecting the popularity o the chain and so
Fast Eater is proposing the introduction o a new product to cater or
the market. Newly established health- ood stores are becoming maj or
competitors. Fast Eater is caught in a marketing war with aggressive
rivals. In addition, economic downturn in its maj or markets is aecting
demand.
a) Explain what is meant by the company went public
in 1 975 . [2 marks]
b) ( i) Use the Anso Matrix to identiy and explain
Fast Eaters past and current growth strategies. [4 marks]
( ii) Use the B oston C onsulting Group Matrix to analyse
Fast Eaters product portolio. [6 marks]
c) Suggest a new product or Fast Eater and devise a
marketing mix ( 7Ps) to support your chosen product. [8 marks]
IB , Nov 2 005

325
4.7 International marketing (HL only)
By the end of this chapter, you should be able to:
 explain the methods of entry into international markets
 examine the opportunities and threats posed by entry into
international markets
 discuss the strategic and operational implications of international
marketing
 evaluate the role of cultural diferences in international marketing
 discuss the implications of globalization for international marketing.

International marketing reers to the marketing o goods and services


across national boundaries: products rom one country are marketed
to another country. Unlike global marketing, where rms use a
standardized approach to market their products in other countries,
in international marketing rms have the fexibility to dier in
their marketing approach to other countries. Increasing worldwide
competition, also known as globalization, is the main cause o the rise
in international marketing.
4 Marketing

Methods of entry into international markets


A method or mode o entry into an international market is a channel
through which a business gains entry into an international market.
Firms can employ various strategies to enter international markets.
S ome are considered below:
 The Internet  many businesses are increasingly using the
Internet to market their products because o its global reach. New
Internet businesses are increasingly being set up to take advantage
o the low costs involved in marketing their products abroad.
E xisting businesses are using the Internet as an additional channel
to enhance their current marketing methods. Trading over the
Internet, also known as e-commerce, will be explored urther in
this unit.
 E xp orting  this can be done both directly and indirectly. In direct
exporting a country commits to market its product abroad on its
own behal. The main advantage here is that the business has
control over its products and operations abroad. Indirect exporting,
on the other hand, involves hiring an export intermediary or agent
in the home country to market the domestic rms product abroad.
A common orm o indirect exporting is p iggybacking, where
already existing distribution channels o one domestic business
are used by another home country business trying to sell a new
product overseas.

326
4 . 7 I N T E R N AT I O N A L M A R K E T I N G ( H L O N LY )

 D irect investment  which is also known as oreign direct


investment, where a business sets up production plants abroad. Key terms
O ne beneft o investing in production plants in a oreign country
International marketing
is that a business gains access to the local market, making products
easily available to customers. It also becomes well versed in local the marketing of goods and
market knowledge and is able to adapt its products accordingly to services across national
suit consumer needs and wants. Many companies have ollowed this boundaries
route, including C oca-C ola, Nike, S amsung, and Toyota.
Globalization
 Joint venture  this is a business arrangement where two or more the increasing worldwide
parties agree to invest in a particular business proj ect. These parties competition leading to a rise
share their resources, with each being responsible or the costs, in international marketing
profts, and losses incurred. However, the participants have their
independent business interests separate rom the newly ormed j oint Piggybacking
venture. For example, in the eort to enter international markets, the use of the existing
the j oint venture Virgin Mobile India Limited, which is a cellphone distribution channels of one
service provider company, was ormed rom Tata Tele service and domestic business by another
Richard B ransons S ervice Group. The company ( j oint venture) home country business trying
makes use o Tatas C D MA network to oer its services under the to sell a new product overseas
Virgin Mobile brand name.
 International ranchising  this is a business arrangement where the
ranchisor (a business in one country) grants the ranchisee (a business
in another country) permission to use its brand, trademark, concepts,
and expertise in exchange or a ranchise ee and a percentage o the
sales revenue as royalty. Examples o businesses that have used this

4 Marketing
as an international marketing strategy include Ocean Basket, Steers,
Wimpy and Nandos. See unit 1 or more on ranchising.

Opportunities of entry into international markets


International marketing oers many potential opportunities or benefts
or the business owner. These include the ollowing:
 A larger market  introducing a companys products to a new market
provides a greater reach or its products, which increases the customer
base. This enables the business to gain higher sales and proftability.
This is also an eective extension strategy when an existing product is
in the saturation stage o its product lie cycle in the home country but
enters a new market to begin its lie cycle aresh.
 D iversifcation  this provides an opportunity or businesses to
spread their risks by investing in other countries. D iversifcation
reduces dependence on gaining sales revenue rom j ust the home
market in case o key risks such an economic downturn.
 E nhanced brand image  the global reach brought about by
international marketing means that the businesses involved can be
perceived to be more successul than those that operate only in the
domestic market. This creates greater brand prestige that can drive
brand loyalty.
 Gaining economies o scale  a business can increase its scale o
operations through international marketing by selling more products
abroad. As a result, this may reduce the average costs o production and

327
4 M AR KE T I N G

so make the business more competitive. The business can then take
advantage by increasing its proft mark-up and gaining higher profts.
 Forming new business relationship s  marketing overseas can
enable a business to make new contacts with various stakeholders,
such as suppliers who may provide good prices or inputs, or
example raw materials, compared to suppliers in the home market.
These contacts can thereore provide opportunities or increased
efciency and proftability or home businesses.

threas posed by enry ino inernaional markes


There are a number o external environmental actors that can be a
source o maj or challenges or businesses engaging in international
marketing:
 E conomic challenges  the inequitable distribution o income in
many countries can pose a maj or problem or countries wanting to
market overseas. Many developing countries have very low per-
capita incomes or purchasing power and thereore may lack the
income to buy the products being marketed. Fluctuating exchange
rates and diering interest rates also pose planning problems or
businesses willing to market abroad.
 Political challenges  unstable political regimes pose a great threat
to domestic businesses willing to operate in oreign markets, due
to the volatile nature o the political arena. The easy tendency or
4 Marketing

governments to change regulations also increases the political risk o


doing international business. The increased threats o global terrorism
and civil unrest have also heightened awareness o which countries
businesses should trade with. The instability o the Middle East and
the invasions o Aghanistan and Somalia are some examples.
 Legal challenges  dierent countries have dierent laws that
businesses need to abide by i they are to market overseas. For
example, the EU is known or its strict policies on anti- competitive
behaviour, advertising and product standards. International
marketers must also adhere to the various consumer protection laws
and intellectual property rights that exist in other countries.
 S ocial challenges  dierences in the demographic or population
structures o dierent countries should be a key consideration or
international marketers. In a number o countries in Europe there
is an increasing older population, while in many Arican countries
there is a growing younger population. Marketers need to be aware
o this disparity and segment the markets accordingly i they are to
reap any benefts. The composition o the population in a country in
terms o gender or number o immigrants present is also a vital social
actor to consider.
 Technological challenges  the growing use o the Internet has
increased the speed in the way businesses operate on a global scale.
However, access to this vital resource is still lacking in a number o
developing countries. This, coupled with limited inrastructure and
poor communication systems, can have a drastic impact on how
businesses operate.

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4 . 7 I N T E R N AT I O N A L M A R K E T I N G ( H L O N LY )

the sraegic and operaional implicaions


for inernaional markeing
A well- dened strategic and operational plan is crucial or a business
deciding to operate in international markets. All sta need to be clear
on the vision, mission, values, and obj ectives that are laid down by
the organization they are working in. This will keep them motivated
and inspired to work towards ullling that dream. However, in some
cases long- term strategic plans are very rigid and cannot survive maj or
changes in the external environment such as economic and political
changes. C onfict between internal stakeholders may arise. For example,
there may be confict between managers regarding the dierence
between a strategic issue and an operational tactic. A senior manager
operating in a oreign subsidiary company may consider increasing
market share as a strategic issue while another manager in the home
country headquarters may view it as an operational issue, which would
clearly result in a clash in their priorities.
A rms ability to pursue a given international marketing strategy
eectively depends to a large extent on the aims and expectations o its
stakeholders. These stakeholders play an important role in providing the
necessary support and resources needed or strategy implementation.
S uccessul rms careully identiy the various stakeholder groups and
ocus on understanding their key expectations and evaluating their
power and infuence so as to get a broader picture o how to more

4 Marketing
eectively operate their businesses.
Hamel and Prahalad ( 1 9 9 6 ) suggest that, or rms to succeed in
their global operations, they have to perceive the changes in the
international environment and develop strategies that will enable
them to respond accordingly. 1 In addition, they argue that early
identication o changes in the markets and respective industries,
together with a thorough analysis o the external international
marketing environment, is important or global survival. For
a sustainable competitive advantage, businesses need to have
management oresight and emphasize organizational learning. Firms
also need to understand that international markets are dynamic and
need constant monitoring and evaluation. Thereore, as markets
change so should marketing strategies and tactics. Innovation as
a result is an important competitive variable, not only in terms o
developing and improving goods or services but also as a driver o
better international marketing strategies. The challenge posed to
international marketers is to have the discipline to conduct thorough
market research continuously and have a clear understanding o what
is required in order to remain competitive.
For rms wanting to be successul in international markets, D oole
( 2 000) suggested three key aspects that rms should incorporate in to
their strategies. 2 First, they should have a clear international competitive
ocus achieved through a thorough knowledge o the international
markets, a strong competitive positioning, and a strategic perspective

1
Hamel, G and Prahalad, CK (1996) Competing or the Future. Harvard Business School Press. Boston, MA.
2
Doole, I. (2000) How SMEs Learn to Compete Efectively on International Markets, Ph.D.

329
4 M AR KE T I N G

that is truly international. S econd, they should incorporate an eective


relationship strategy achieved through strong customer relations,
a commitment to quality products and service and a dedication to
customer service throughout international markets. Last but not least,
a well- managed organization should continuously emphasize a culture
o learning. Firms that are innovative and willing to learn showed high
levels o energy and commitment to international markets and had
eective monitoring and control procedures or all their international
markets.
The global business environment is becoming more and more
competitive and only organizations that can adapt to the changes in
external actors will remain competitive and continue taking advantage
o the opportunities that arise in international markets.

the role o culural diferences in inernaional


markeing
C ulture plays a signifcant role in international marketing. B usinesses
that recognize the varying cultural dierences globally in marketing
their products stand a better chance o gaining a competitive advantage
than businesses that do not.
Language is a key component o culture globally and understanding the
meanings o words in dierent contexts should be a maj or priority or
international marketers. This is because, in the process o translation,
4 Marketing

some words are given totally dierent meanings rom the original and in
some cases the translated words are conusing or even oensive to the
audience. For example, in C hina C oca-C ola initially sounded like Kooke
Koula which means a thirsty mouthul o candle wax ater translation.
C oca-C ola C ompany later had to work on the pronunciation to sound
like Kee Kou Keele which means j oyul tastes and happiness. Pepsi
C olas campaign C ome Alive with Pepsi ailed in Germany because
translated it meant C ome Alive out o the Grave. Silver Mist was
a model car manuactured by Rolls-Royce; however, mist translated
into German means dung. General Motors brand name Nova was
unsuccessul in Spain because nova in Spanish means no go.
The diering roles o men and women in society should also be
considered. In Europe and the US A it is common to use emale models
wearing bikinis to advertise summer wear. However, this would be
against the culture o more conservative countries. For example, in
the United Arab Emirates women are expected to cover their bodies
completely. An advertisement by C amay soap in France showing a
husband washing his wies back was successul in France but ailed in
Japan as women saw this as an invasion o privacy.
Local tastes and preerences are another important cultural
consideration. In India, McD onalds had to change their bee burgers to
chicken burgers because the Hindu religion does not allow people to
consume bee. In Kenya, the Maasai are keen bee consumers. S erving The Silver Mist was renamed
a Maasai household with fsh would be considered inappropriate and Silver Shadow to avoid an
might even be oensive. awkward translation!

330
4 . 7 I N T E R N AT I O N A L M A R K E T I N G ( H L O N LY )

E thics and culture also go hand in hand. For example, chewing gum is
banned in S ingapore and is viewed as unethical; however, it is allowed CULTURE
in many other countries. Smoking in public is allowed in some countries When businesses market their
but banned in others. Alcohol consumption is only allowed or adults products and services across
aged 2 1 and above in the US A; however, in many Arican countries international boundaries, they need
anyone aged 1 8 years and above can consume alcohol. to understand each local market
individually.
There are many other signicant cultural issues that businesses must
Carry out more research on how
consider, including symbols and colours used, that have a great impact
culture infuences international
on how they penetrate international markets. Awareness o all these
marketing. Which cultural actors
cultural elements is vital or success in international marketing. do you think have the strongest
infuence on international
marketing? Why?
the implicaions of globalizaion for inernaional
markeing
Globalization, mostly brought about by the growing importance o
international trade and the growth o multinational companies, has
necessitated the increased use o international marketing. B usinesses
will need to consider the ollowing implications o globalization while
conducting international marketing:
 C omp etition  globalization has led to many oreign businesses
getting access to domestic markets, so rms in the local markets
have had to use aggressive marketing campaigns to compete with
the larger oreign multinationals. D eregulation or the liberalization
o markets has also increased global competition. Firms that once

4 Marketing
enj oyed monopoly power in the domestic market, such as S aaricom
( a mobile telecommunications provider) in Kenya, have had to ace
it o with maj or cellphone subscriber giants such as O range, Yu,
and Airtel. However, in some cases oreign rms have used anti-
competitive measures that have driven local businesses out o the
country, causing unrest among members o the public there.
 C hanging consumer tastes and exp ectations  the infux o
cultural exports, which are the belies, values, and ideas transerred
rom one country to another, are changing how businesses are
operating today. Indian curry is very popular in the UK, while the
US burger is consumed widely in S outh Arica. While travelling,
many consumers expect to see their cultural dish available in many
countries. B usinesses have thereore had to adapt so as to provide a
variety o ood products to meet this growing consumer demand. O n
the other hand, traditional oods in some countries are disappearing
and being replaced by the more westernized dishes.
 Location decisions  choosing an appropriate global location in
which to produce or operate can have signicant international
marketing advantages. Many clothing and shoe companies, or
example Nike and Adidas, have located to India and C hina to take
advantage o the low cost o labour. As a result o their cost savings
they can use the extra money to market their products and reach a
wider customer base. However, some o these companies have been
accused o acting unethically, especially towards their workers and
mostly with regard to overexploitation.

331
4 M AR KE T I N G

 E conomies of scale  in the process o overseas expansion,


businesses have been able to spread their xed costs over an TOK discussion
increased output. This has lowered their average costs o production
To what extent does the
and increased the possibility o gaining higher prots. They have also
Internet provide true value to
gained better negotiation power with suppliers in their countries o
the customer?
operation. However, some o the oreign rms have grown so large
in the domestic context that they are even able to infuence the
government to set policies that act in their avour.
Undoubtedly, globalization has played a maj or role in international
marketing. A consideration o the above actors, including their costs and
benets, will assist rms in making better overseas marketing decisions.

Student workpoint 4.14


Be a thinker
1 . E valuate the benets and problems o overseas expansion.
2 . D iscuss how culture has infuenced current international
marketing.

revision checklist
 International marketing is the marketing o goods and services rom
one country to another. It provides businesses with the fexibility to
4 Marketing

dier in their marketing approach to other countries. Globalization is


the main causal actor to the rise in international marketing.
 Modes o entry into international markets include the internet,
exporting, direct investment, j oint ventures and international
ranchising.
 The opportunities o international marketing include a larger market
share, diversication, enhanced brand image, economies o scale and
the ormation o new business relationships
 The threats o international marketing include political, economic,
social, legal and technological challenges.
 D ue to the global business environment becoming more competitive,
businesses that can adapt their strategies to suit the changes in
external actors will remain competitive and continue to take
advantage o the opportunities that arise in international markets.
 As a result o the signicant role culture plays in international
marketing, businesses that recognize the varying cultural dierences
globally in marketing their products stand a better chance o gaining
a competitive advantage than businesses that do not.
 Implications o globalisation that businesses will need to consider in
international marketing include competition, changes in consumer
tastes and expectations, location decisions and economies o scale.

332
4 . 7 I N T E R N AT I O N A L M A R K E T I N G ( H L O N LY )

Practice question
Pacifc B lue
In 2 007, the low cost airline Pacifc Blue entered the New Zealand
market with an initial oer to sell 70 000 tickets at low prices on fights
between Auckland, C hristchurch and Wellington. Almost hal o the $ 2 9
tickets were booked online within hours. C hie executive B rett Godrey
expressed his surprise: It almost caused our website to crash.
Air New Zealand and QANTAS, the established market leaders were quick
to respond to the new competitor by cutting prices to $ 49. A director
o Air New Zealand doubted whether Pacifc Blue could sustain these
prices as part o its long-run strategy to enter the New Zealand market.
S he also questioned whether the company could satisy demand with
only 2 planes or 1 1 scheduled fights per day between Auckland and
Wellington, the most popular route. B y contrast, Air New Zealand uses
7 planes on the same route. A QANTAS director has commented that
Pacifc Blue could ace signicant capacity utilization problems.
B rett Godrey accepted that Pacifc Blue might run at a loss initially, but
he was also condent about penetration pricing: we have done this
beore in Australia and we have money in the bank to survive and hope
to oer more routes, subj ect to government approval and the support o
the New Zealand public.
Air New Zealand and QANTAS promised to remain competitive.

4 Marketing
[Source: adapted from The Age, 4 September 2007]

a) D ene the ollowing terms:


( i) market leader [2 marks]
( ii) penetration pricing. [2 marks]
b) Explain two other marketing strategies that Pacifc Blue
could have used. [6marks]
c) Examine two problems that Pacifc Blue could ace when
using penetration pricing. [6marks]
d) Evaluate two potential opportunities and two potential threats
which Pacifc Blue could ace when entering into a new international
market. [9 marks]
IB , May 2 009

333
4.8 E-commerce
By the end o this chapter, you should be able to:
 describe the eatures o e-commerce
 analyse the efects o changing technology and e-commerce on the
marketing mix
 distinguish between the three types o e-commerce
 discuss the costs and benets o e-commerce to rms and consumers.

E- commerce involves the buying and selling o goods and services


through electronic networks, commonly via the Internet.

the eaures o e-commerce


 Ubiquity  the Internet is widely available at any time. It can be
accessible at home, at work, or in hotels or 2 4 hours each day,
7 days a week.
 C ustomization  individuals can personalize their messages and
4 Marketing

decide how they will be delivered to other individuals or groups.


 Global reach  also known as the worldwide web, the Internet
traverses many national boundaries.
 Integration  the Internet allows the combined use o audio, video,
and text messages to deliver a marketing message.
 Universal standards  there is only one set o Internet standards
globally.

the efecs o changing echnology and


e-commerce on he markeing mix
Technological advancements such as the increased use o iPads ,
smartphones, and laptops, and the growing use o e- commerce today in
business transactions have had a great impact on the marketing mix:
 Product. With e- commerce, businesses such as Amazon can sell
to a wider customer base than ever beore. This also allows them
to stock a wide range o products to meet demand, which could
lead to higher sales and proftability. Interactive websites such as
D ell online allow customers to view and customize a product to
suit their own specifcations. This can lead to greater customer
satisaction as the product is delivered according to the individual
needs o the consumer.
 P rice. C onsumers can now make easy price comparisons using
websites such as  Google product search that can search or price

334
4.8 E-COM M ERCE

inormation or them. They can there ore get acce ss to the most
comp etitive glob al prices leading to good savings. E - commerce
has also led to the increase d use o a direct selling approach rom
manuacturer to consume r, which has helpe d re duce distrib ution
costs or producers and made aordable products availab le to
consumers.
 Promotion. E- commerce has provided an additional medium or
businesses using traditional promotion. Many businesses are now
supplementing their current promotional methods with online
advertising. The increased use o pop- up advertisements, banners,
and viral marketing has led to a aster and more cost- eective spread Amazon is currently the largest online
o promotional material than ever beore. E- commerce, with the retailer in the world
help o technological tools, provides multiple ways or businesses
to promote their products. For example, through a combined use
o audio, video, text messages, or picture images, a promotional
campaign is bound to be more eective in the eyes o the consumer.
Feedback rom consumers through online surveys can urther help
businesses to tailor products to their customers specifc needs.
 Place. E- commerce has defnitely reduced the need or
intermediaries in the chain o distribution. This has led to cost gLOBaLiZatiOn
savings or manuacturers o various products. However, the role In 2013, the clothing retailer ASOS
o these intermediaries in the marketing process should not be launched new websites for Russia
disregarded. For example, the personal appeal retailers provide to and China and eBay produced
a new mobile app especially for
consumers is lost by trading over the Internet, which is impersonal.

4 Marketing
shoppers in Brazil.
O n the other hand, the Internet has made it more convenient
or consumers to buy products  they no longer have to visit the Do research on how globalization
retail outlets. C ustomers searching or products rom various is infuencing e-commerce today
and vice versa. Can you think o
global locations will beneft rom the many language translation
any limitations o e-commerce in
applications available on websites, which they can download to their
ostering globalization?
technological tools to aid them in their purchasing decisions.

types of e-commerce
E -commerce can be categorized into the ollowing types.
B usiness-to-business (B 2 B ) is a type o e-commerce where a business
trades with another business. Goods and services are bought and
sold rom one organization to another. This could involve producers
transacting with wholesalers or wholesalers with retailers in a chain o
distribution. The volume o transactions involved in B 2 B businesses is
usually large. Automobile manuacturers are an example o how B 2 B is
used. In most cases, vehicle component parts such as batteries, tyres, and
windows will be sourced and purchased separately rom other dealers by
the main auto manuacturer.
B usiness to consumer (B 2 C ) is e- commerce carried out rom a
business to a particular end user who is usually the customer or
consumer. These transactions are more visible to the public compared
to B 2 B transactions. S uccessul B 2 C businesses include Amazon, eB ay,
Priceline, and Google.
C onsumer to consumer (C 2 C ) reers to e- commerce that allows or
transactions rom one customer to another. C 2 C businesses provide

335
4 M AR KE T I N G

opportunities or individuals to interact and exchange with one another


in addition to selling or buying products to or rom each other. Examples Key terms
o businesses that ft well into these criteria are eB ay and C raigslist.
E-commerce
the buying and selling o
The benefts o e-commerce to frms goods and services through
 Firms can reach a wide target market in an eort to market and sell the internet.
their products, resulting in an increased customer base.
Business to business (B2B)
 It is a more cost- eective method to use in advertising a frms
product compared to other means such as television advertising. a type o e-commerce where a
business trades with another
 S ocial networking companies such as Facebook have benefted rom business.
high advertising revenue by selling their high-valued space.
 Reduced wastage on paper is noted by frms that insist that
Business to consumer (B2C)
consumers view instructions, news, or inormation on the web a type o e-commerce carried
instead o waiting to be sent relatively expensive brochures or out rom a business to a
newspapers. This helps to cut costs or businesses. particular end user who is
usually the customer or
The benefts o e-commerce to consumers consumer.
 It is convenient or consumers because they can trade on the Internet Consumer to consumer (C2C)
in the comort o their location without having to visit a shop a type o e-commerce that
physically. allows or transactions rom
 Increased choice is also a key advantage or consumers. They can one customer or consumer to
easily make comparisons o the various products on oer beore another.
4 Marketing

deciding to make a purchase.


 Good online customer service increases customers satisaction and
makes them happy. For example, delivery companies such as Fedex
that deliver documents provide tracking numbers to customers to use
online to check the whereabouts o their documents.

The costs o e-commerce to frms


 C oncerns by consumers about Internet security regarding the
payment process may lower the sales and growth potential or frms.
 B usinesses spend signifcant sums trying to fnd measures to curb
online raud by Internet criminals trying to gain access to customers
accounts.
 Firms may be vulnerable to competitors who can gain access to their
product details and business inormation.
 S etting up and maintaining a website can prove to be expensive
or many businesses, especially start- ups, and may turn out to be a
high- risk venture.

The costs o e-commerce to consumers


 C onsumers may not have the ability to try or eel certain products
beore buying them. For example, many consumers would like to sit
on a chair beore buying it.
 O nline pop-up advertisements and advertising spam are considered
maj or distractions and time- wasters by consumers.

336
4.8 E-COM M ERCE

 In some countries, consumers may lack tools such as computers or


smartphones to access the Internet. Poor Internet connectivity is also
a problem experienced by consumers in some locations.
 When looking or inormation using a search engine, consumers are
sometimes aced with too much inormation ( inormation overload)
and so they resort to using other means o getting the product.

Student workpoint 4.15


Be an inquirer
Examine how e-commerce is currently infuencing the marketing
strategies o businesses.

revision checklist
 E- commerce is the buying and selling o goods and services via the
internet.
 C ommon eatures o e- commerce include ubiquity, customisation,
global reach, integration and universal standards.
 E- commerce due to advancements in technology has had a great
impact on the marketing mix elements o product, price, promotion
and place in businesses.

4 Marketing
 The categories o e- commerce include; B usiness to business ( B 2 B )
where a business trades with another business, B usiness to consumer
( B 2 C ) which is carried rom a business to a customer or consumer
and C onsumer to consumer ( C 2 C ) which allows transactions rom
one consumer or customer to another.
 B enets o e-commerce include a wider market reach, cost
eectiveness and convenience while costs o e- commerce are
internet security concerns, increased competition and a lack o ability
to try out product beore purchasing it.

337
4 M AR KE T I N G

Practice question
Peace Frogs (PF)
Peace Frogs ( PF) is an American company selling clothes and accessories
that are branded by a rog making the peace sign. PF specializes in
teenage and young- adult clothing.
The company started operations in 1 985 with the sale o multi- coloured
shorts designed ater various national fags rom around the world.
Founder C atesby Jones chose the name Peace Frogs because the rog is
a Native American ( American Indian) symbol or peace and, in some
cultures, a symbol or good luck. As the shorts reached maturity in the
product lie cycle, the company shited to selling other items, always
branded with the image o the peace rog.
PF products include T-shirts, sweatshirts, hats, swimsuits, stickers, and
other items. In 2 007 the company introduced organic cotton T- shirts to
its branded product line. The cotton meets rigorous organic certication
standards. The T- shirts are made without using chemicals harmul
to the environment. The company reuses to purchase clothing rom
manuacturers that employ children or that do not maintain rigorous
saety standards.
PF uses e- commerce and has its own retail stores in 1 1 American states.
S ince 1 998 the company has had multi- coloured vans that drive to
shopping centres, concerts and theme parks around the country. D rivers
then sell PF- branded products, using the van as a retail store.
4 Marketing

A concern among environmentalists is the decline in the number o


species o rogs worldwide. At present, several species o rogs ace
extinction. The destruction o their natural habitat is the main threat or
them. PF makes nancial contributions to several organizations committed
to environmental protection, which strengthens PFs brand.
a) Identiy two eatures o e- commerce. [2 marks]
b) E xplain two ways PF practices ethical behaviour. [6 marks]
c) Analyse the benets o two methods o distribution
o PFs product. [5 marks]
d) D iscuss the importance and role o branding or PF. [7 marks]
IB , May 2 01 2

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